Infosys, TCS, Wipro, Cyient, Mphasis, Persistent, Coforge shares: What to watch in Q3 results?

IT firms are all set to kick off December quarter earnings season, with the largest two software exporters Tata Consultancy Services Ltd and Infosys Ltd announcing their results on January 11. If one were to go by what analysts say, there is unlikely to be any change in the cautious management commentary. December is already a seasonally weak quarter for IT majors due to higher furloughs, analysts anticipate a likely impact of postponed wage hikes on margins.

"There have been no announcements of mega deals (over $1 billion TCV) in the quarter. It is also possible that clients did not want any such mega deals to be disclosed; will check commentary on that front. Continental Europe’s economic conditions have worsened lately and will wait to see any impact on demand here from the same," said Nirmal Bang Institutional Equities.

Among companies, Nirmal Bang said investors would wish to known whether Infosys reports revenue at higher or lower end of its guidance, whether HCL Technologies Ltd will deliver on its tier-1 leading guidance in revenue and whether there is any change in the higher-than-industry revenue conversion problem seen in Wipro.

For Tech Mahindra Ltd, the performance of CME vertical performance and its outlook would be keenly followed while in the case of LTIMindtree Ltd, all eyes would be on how much of the cross sell and up sell strategies are working. Besides, investors would wan to know whether there is any change to the exit margin for FY24

In the case of tier II players, investors would want to know How is Mphasis Ltd's non-mortgage BFS area doing on a sequential basis, how are the Hi-tech and BFSI verticals doing for Persistent Systems and if there is any change in colour for Coforge Ltd's 13-16 per cent CC revenue growth and 18.3 per cent adjusted Ebitda margin guidance for FY24.

"As 3Q furloughs are higher than anticipated at the beginning of FY24, we expect the selective Tier-2 companies (Coforge, Cyient) to revise their revenue guidance downward. Despite this, we expect the companies to maintain and achieve margins within the guided band by implementing rigorous cost-cutting measures," said Motilal Oswal Securities.

This brokerage expects Infosys (down 1.7 per cent QoQ) an Wipro (down 2.7 per cent QoQ) to witness a sharp decline in CC revenues. HCL Tech should outpace others with 2 per cent QoQ CC revenue growth in its Service business. LTIMindtree, TCS and TechM is seen reporting revenue growth/degrowth of 1.2 per cent, minus 0.4 per cent and minus 1.1 per cent QoQ, respectively.

"Among Tier-II companies, we expect Persistent Systems to outpace its peers with 3 per cent QoQ

CC revenue growth, aided by strong momentum in Hi-Tech and Healthcare. L&T Technology Services Ltd/Coforge Ltd should experience muted growth of 1.3 per cent/1.0 per cent QoQ in CC, followed by Mphasis/CYL-DET at 1.0 per cent/0.3 per cent QoQ in CC, while Zensar Technologies Ltd is likely to see a decline of 4.4 per cent QoQ in CC," it said.

Emkay Global said expects sequential growth of 1.0-4.6 per cent for mid-caps. For Infosys, it expects the company to narrow its FY24 revenue guidance to 1-2 per cent from 1-2.5 per cent, while HCL Tech should maintain its guidance of 5-6 per cent CC YoY. It expects Wipro to guide for Q4FY24 revenue growth of minus 1 to 1 per cent.

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The brokerage said multiple rerating accounts for most of the IT stocks' FY24 gains, even though earnings estimates have declined over the same period (except for Birlasoft, Firstsource Solutions, EClerx Services.

"We raise target multiples to factor-in the anticipated acceleration in the revenue growth trajectory and the lower macro uncertainty. Consequently, our target price gets a lift by up to 36 per cent, along with roll over to Dec-24E. We upgrade HCL Tech to BUY from Reduce, while retaining our rating on other coverage stocks. Our pecking order is Infosys, HCL Tech, TechM, Wipro, TCS, and LTIMindtree, among Tier-1 companies," it said.

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