Amid no-show Q4, IT investors scout for silver linings
Motilal Oswal Financial Services expects HCL’s FY25 revenue growth to be near the upper-end of its guidance band, which will put the company ahead of its large-cap IT services peer set barring Tata Consultancy Services Ltd (TCS), which is executing the mega BSNL deal, and LTIMindtree Ltd. “While we expect some near-term pressure on the stock on account of weak FY25 revenue growth guidance, we continue to expect the stock to outperform its peers," wrote Motilal’s analyst Mukul Garg in a report on 27 April. In the March quarter (Q4FY24) results announced post-market hours on Friday, HCL saw muted consolidated CC revenue growth of 0.3% sequentially.That said, itskeyIT and Business Services CC growth at 4% was ahead of consensus estimates.Further, new deal-wins at $2,290 million rose year-on-year and sequentially.
The deal pipeline continues to grow and remains healthy, the management said. But wage hikes hurt Ebit (earnings before interest and tax) margin, which stood at 17.6% in Q4. While the management has retained Ebit margin guidance of 18-19% for FY25, it believes FY25 to be a year of consolidation on both demand and supply side.
In the longer run, HCL continues to aim for a 19-20% margin. As such, the revenue performance of most tier-1 IT companies in Q4FY24 was nothing to write home about. Further, the subdued FY25 and Q1FY25 revenue guidance by Infosys Ltd and Wipro Ltd, respectively, paints a grim picture; keeping the sector’s near-term revenue visibility low despite robust deal wins.
In this backdrop, dejected IT investors can pick and choose potential positives in management commentary and latch on to a sliver of hope. A case in point is Tech Mahindra Ltd. The stock jumped nearly 8% on Friday after the Street got
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