TCS, Infosys, HCL Technologies: Here’s what to expect from IT majors' Q4 results

Analysts on Dalal Street hold a mixed view on the information technology (IT) sector for the fourth quarter. Where HDFC Securities believes that the sector’s growth is expected to bottom out in Q4FY24 and recover gradually in FY25, brokerage Nirmal Bang Securities thinks that forthcoming earnings do not have a material upside. The country’s largest IT majors by market capitalisation Tata Consultancy Services and Infosys are slated to announce their March quarter results on April 12 and 18, respectively.

According to HDFC Securities growth divergence will continue within the sector and guidance for FY25 is likely to factor in improved second-half performance. An assessment by the brokerage showed that TCS may see 6.6% YoY and 3.1% QoQ growth in adjusted profit after tax in Q4FY24. On the other hand, the IT major may post 3.5% YoY and 1% QoQ increase in net sales.

HDFC Securities further projected that Infosys may see 0.90% YoY and 0.60% QoQ fall in adjusted PAT for the quarter ended March 2024. On the other hand, it projected 3.5% YoY and 1% QoQ growth in net sales.

“Even as growth has bottomed out, valuation restricts significant upside case in the near term. IT sector valuations are at 25 times, at 10% above the 5Y average (23x) and 35% above the 10Y average (18.5x), ahead of the US election volatility,” HDFC Securities said in a report. 

With a rally of 22%, Nifty IT index underperformed the Nifty50 index (up 29%) in FY24. Shares of Persistent Systems gained the most 73% during the previous financial year.

It was followed by L&T Technology Services (up 62%), Coforge (up 44%), HCL Technologies (up 42%), Mphasis (up 33%), Wipro (up 31%), TCS (up 21%), Tech Mahindra (up 13%) and Infosys (up 5%).

On the other hand, Nuvama Institutional Equities said, “Q4FY24 is anticipated to be a modest quarter, with muted growth, but along expected lines. Revenue growth is likely to be between -1.5% and 4.5% – dragged by a gradual reversal of furloughs and lower discretionary tech spending. Once again, quality Tier-2 companies shall outperform their larger peers. Deal flow shall continue to be stable, which should translate to a recovery in coming quarters.”

It also expects that most companies to guide to a slightly better FY25 compared with FY24 and the focus shall now shift to execution of deals won in the last three quarters amid a steady improvement in the global macro environment. “We stay positive on the sector, with medium to long-term growth potential outweighing near-term headwinds,” Nuvama said in a report.

Sharing its view on HCL Technologies, the brokerage said HCL Technologies revenue shall grow 0.3% QoQ in constant currency terms and 0.7% QoQ in dollar terms - driven by services (2.4% QoQ) and P&P (-15% QoQ, seasonality impact). Services growth shall be driven by Verizon deal and reversal of furloughs. “EBIT margin shall decline 190 bps QoQ on seasonal margin dip in P&P. We expect HCLT to give FY25 revenue growth (4-6% CC YoY growth in services) and margin (18-19%) guidance. Nuvama also projected 7.3% YoY growth in revenues in CC terms and 1.8% YoY growth in profit after tax for HCL Technologies.

On the other hand, it believes that the EBIT margin of Infosys is likely to dip nearly 30 bps QoQ on the one-month wage hike impact, some furloughs and revenue decline. “We estimate steady deal-wins and conservative commentary on the demand environment. We expect Infosys to guide for 3-5% CC YoY revenue growth and margins in 20-22% range for FY25,” Nuvama said adding it remains positive on Coforge, Persistent, Infosys, TCS, HCL Tech and LTIMindtree.