TCS, Infosys, HCL Technologies: Insights into Q4 Results Expectations

Analysts on Dalal Street have varied perspectives on the upcoming fourth-quarter results of the information technology (IT) sector. While HDFC Securities anticipates a bottoming out of growth in Q4FY24 with a gradual recovery in FY25, Nirmal Bang Securities opines that forthcoming earnings lack material upside. The industry’s major players, including Tata Consultancy Services (TCS) and Infosys, are scheduled to unveil their March quarter results on April 12 and 18, respectively.

According to HDFC Securities, growth disparities will persist within the sector, with guidance for FY25 expected to reflect improved second-half performance. The brokerage forecasts a 6.6% year-on-year (YoY) and 3.1% quarter-on-quarter (QoQ) growth in adjusted profit after tax for TCS in Q4FY24. Meanwhile, TCS may witness a 3.5% YoY and 1% QoQ increase in net sales. Similarly, Infosys is projected to experience a 0.90% YoY and 0.60% QoQ decline in adjusted profit after tax ( PAT), along with a 3.5% YoY and 1% QoQ growth in net sales.

Despite the anticipated bottoming out of growth, HDFC Securities underscores valuation constraints, with IT sector valuations currently at 25 times, representing a 10% premium over the five-year average and a 35% premium over the ten-year average. The brokerage emphasizes the need for cautious optimism due to valuation concerns and ongoing market volatility.

Nuvama Institutional Equities expects a modest quarter for Q4FY24, projecting revenue growth between -1.5% and 4.5%. They anticipate revenue growth to be impacted by factors such as gradual furlough reversals and reduced discretionary tech spending. However, they predict that quality Tier-2 companies will outperform larger peers, with stable deal flow translating to recovery in subsequent quarters.

The focus is expected to shift towards the execution of deals won in recent quarters amid a steadily improving global macro environment. Nuvama remains optimistic about the sector’s medium to long-term growth potential, outweighing near-term challenges.

In terms of individual companies, Nuvama projects HCL Technologies to witness modest revenue growth driven by services, offset by seasonal impacts in Products & Platforms (P&P). Conversely, Infosys may face margin pressure due to wage hikes and revenue declines. However, steady deal-wins and conservative demand environment commentary are anticipated. Nuvama remains positive on Coforge, Persistent, Infosys, TCS, HCL Tech, and LTIMindtree.

Overall, while differing opinions exist regarding the sector’s short-term trajectory, analysts are optimistic about its long-term growth prospects, underpinned by steady deal flow and improving market conditions.