TCS vs Wipro vs HCL Tech shares: How 3 top IT firms fared, stock price targets & more

Tier 1 It players such as Tata Consultancy Services Ltd (TCS), Wipro Ltd and HCL Technologies (HCL Tech) are unsure of a recovery in the demand in the second half of FY24, thanks cost savings by clients and their shift to larger and longer tenure deals that are impacting short-term revenue conversion from total contract value (TCV). The deal wins for June quarter were strong (except for HCL Technologies) and numbers too were mostly in line with Street estimates, analysts noted. Here’s how the three IT giants fared in the quarter gone by:

Deal wins

The key positive for the quarter was TCS' big beat on order inflow of $10 billion. That, without even taking the BSNL deal into consideration. Wipro's deal win was consistent. Near-term weakness aside, Wipro's large deal engine is performing well, JM Financial said in a note. Wipro won 10 large deal ($30 million-plus) worth $1.2 billion, with the overall TCV coming in at $3.7 billion for the quarter. In the case of HCL Tech, however, the reported new deal wins of $1.6 billion were lower than $2.1 billion TCV in the March quarter.

Growth guidance

HCL Tech has maintained its revenue growth guidance for FY24 at 6-8 per cent YoY in cc terms, while it sees EBIT margin in the range of 18-19 per cent, the same as before. Motilal Oswal sees elevated risk to HCL Tech’s growth guidance on account of the steep ask rate over the next three quarters and said its CC revenue growth estimates are 30 bps below (at 5.7 per cent YoY CC) the lower end of the management’s guidance band.

In the case of Wipro, the IT major has guided for IT Services business segment revenue in the range of $2,722 million to $2,805 million for the ongoing September quarter. This translates to a sequential guidance of minus 2 per cent to 1 per cent in constant currency terms. Analysts said the guidance was muted and reaffirm its troubles with converting deal-wins into growth. TCS does not offer guidance.

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Profit, sales

TCS reported a 16.83 per cent year-on-year (YoY) rise in net profit at Rs 11,074 crore for the June quarter on 12.55 per cent YoY rise in sales at Rs 59,381 crore The profit growth figure came largely in-line with analyst estimates of 15-20 per cent. Sales too met double-digit growth estimates. In the case of Wipro, profit rose 11.95 per cent year-on-year (YoY) to Rs 2,870.1 crore on 6.04 per cent YoY rise in sales at Rs 22,831 crore. The profit growth fell short of analyst estimates but the revenue figure came in line with expectations. For HCL Tech, profit was up 7.6 per cent at Rs 3,534 crore while sales 12 per cent YoY to Rs 26,296 crore. Analysts said revenue and profit both fell short of expectations.

Margin

For TCS, Ebit margin for the quarter came in at 23.1 per cent, up 10 basis points YoY. That said margin contracted 130 basis points sequentially due to salary hikes during the quarter. For HCL Tech, EBIT margin decreased 122 bps QoQ to 17 per centl ed by increase in SG&A expenses. Unlike TCS that took a margin hit to reward employees, HCL Tech deferred annual pay reviews of its staff by a quarter. Wipro's IT Services segment's operating margin came in at 16 per cent, up 112 basis points YoY but flat QoQ

Analyst targets

For TCS Jefferies finds the stock worth Rs 3,450. Morgan Stanley maintained its equal weight on the stock with a target of Rs 3,305; Nomura India has a target of Rs 2,800 on the Tata group stock while JPMorgan has suggested a target price of Rs 2,650 on the IT scrip.

In the case of Wipro, while Nirmal Bang sees the stock at Rs 338, Morgan Stanley has a target of Rs 352 on the stock, BofA Securities at Rs 360, Nomura at Rs 375, Motilal Oswal Securities at Rs 380 and Nuvama Institutional Equities at Rs 400.

For HCL Tech, Macquarie has a target of Rs 1,520 on the stock; Jefferies sees the stock at Rs 1,205, Nomura at Rs 1,090, Bernstein at Rs 1,000 and JPMorgan at Rs 900.

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