Indian IT Stock Q4 Results Wipro, TCS, HCL, or Infosys

Major IT stocks, including TCS, Infosys, Wipro, HCL Technologies, and Tech Mahindra, which account for over 12% of the Nifty50 index, reported their Q4FY23 results recently, leaving investors disappointed with their lower-than-expected growth in revenue on a quarter-on-quarter basis. While their year-on-year revenue was higher than that of the same quarter the previous year, most companies reported a decline in constant currency (CC) revenue. Infosys experienced a 3.2% QoQ decline, with $4,554 million, HCL witnessed a 1.2% QoQ drop, with $3,234.6 million, and Wipro reported a 0.6% QoQ fall, with $2,831 million. Tech Mahindra's CC revenue remained the same, with $1,668 million. The margins of most IT companies declined due to the banking crisis, which affected the BFSI vertical. However, the attrition rate witnessed a downward trend across most IT companies.

Despite this, TCS emerged as a top pick for investors due to its better-than-expected Q4FY23 results. TCS reported a rise of 14.76% YoY in profits to Rs 11,392 crore, and also declared a dividend of Rs 24 per share. The company's growth in the UK was up by 17%, North America by 9.6%, and continental Europe by 8.4%. "Amongst the large cap IT companies, TCS is our top pick as it has reported good numbers amid the difficult operating environment, geopolitical disruptions, and economic slowdown situation," said Rajesh Sinha, Senior Research Analyst at Bonanza Portfolio. Anuj Gupta, Vice President-Research at IIFL Securities, concurred, stating that compared with other IT stocks, TCS has reported better numbers amid a challenging environment.

While TCS's share prices corrected by almost 20% from its high of Rs 4,043 levels to the current market price of Rs 3,226, it has shown some indications of technical recovery. NiftyIT is also exhibiting a positive momentum in tandem with TCS, which Gupta believes will recover from here and may test Rs 3,400 to Rs 3,500 levels soon. However, strong support is seen at Rs 2,900 levels, and any further downside in the prices would only occur if the stock falls below that level. Gupta added that all IT stocks are looking lucrative for investment purposes within a one-year horizon as bottom buying may be seen in the counters.

What invester do?

Wipro: Wipro has delivered Q4 revenue growth that was in-line with expectations, but the company's guidance for the first quarter of FY24 is weak. Wipro's Q4 revenue growth of (-) 0.6 percent QoQ is not likely to see any positive triggers in the near term as the company has cut discretionary spending, especially in the BFSI and tech verticals, and postponed some programs. Furthermore, the buyback program (4.9 percent of equity) cushions the valuation (16.6 times FY24E). HDFC Securities, a domestic brokerage firm, has given an 'Add' rating with a lowered target price of Rs 400 based on 16 times December-24E EPS or earnings per share, factoring in a 9 percent EPS CAGR over FY23-25E. Meanwhile, Centrum broking has a 'Reduce' rating on the stock and has reduced its target price to Rs 373. It expects Wipro's revenues to grow by 5 percent CAGR from FY23-25E and overall operating margins to reach 16.7 percent by FY25E (FY23:14.9 percent).

Infosys: Indian IT giant Infosys recently reported weak revenue numbers in Q4FY23. The company's revenue declined by 3.2 percent quarter-on-quarter, although it rose by 8.8 percent year-on-year in constant currency (CC) terms. Additionally, EBIT margins declined by 50 basis points QoQ to 21 percent.

Despite this, the company's share price has grown by 2.5 times over the past five years, from Rs 564 in April 2018 to Rs 1,388 levels in April 2023. Domestic brokerage ICICI Direct has maintained a 'Buy' rating on the stock, with a target price of Rs 1,600, i.e., 22 times P/E on FY25E EPS (earnings per share). Vikram Kasat, Head Advisory at Prabhudas Lilladher Pvt Ltd, has a target price of Rs 1,630 on the Infosys stock, with a stop loss at Rs 1,125.

In terms of shareholding, the promoters' stake has increased from 13.11 percent in June 2022 to 15.14 percent, while FII’s holding now stands at 35.09 percent, up from 31.72 percent in June 2022, and DIIs at 33.59 percent, up from 18.88 percent in June 2022. However, retail investors' holding has decreased to 15.67 percent from 35.98 percent in June 2022.

According to Prabhudas Lilladher, negatives have already been priced in recent stock price corrections and the risk-reward ratio has turned favorable.

TCS: Tata Consultancy Services (TCS) has reported a weak operating performance in Q4, owing to the softness in discretionary spending and the deferment of non-critical new projects. The revenue of the company grew 1.7 percent quarter-on-quarter to $7.19 billion (0.6 percent CC QoQ), amid a challenging operating environment, as clients turned cautious, pausing discretionary projects, and deferring non-critical ones.

Motilal Oswal has largely maintained its FY24/FY25 EPS estimates. In a note, it said, "Over FY23-25, we expect a $ revenue CAGR of 10.7 percent and an Rs EPS CAGR of 15.7 percent." The brokerage has set a target price of Rs 3,860, implying 25 times FY25E EPS, with an upside potential of 19 percent. The brokerage has reiterated its 'Buy' call on the stock.

Centrum Broking has stated, "We expect TCS's revenue/EBIT/PAT to grow at 9%/13%/13% between FY23-25E and maintain our 'Add' rating for the stock with a revised target price of Rs 3,541."

The company's management has indicated that demand has remained stable, although there have been some delays in decision-making in certain geographies. The company's outlook for the near-term remains cautious due to the uncertainties around the impact of COVID-19 and supply chain issues, among other factors.

TCS's stock has been largely unaffected by the Q4 performance and has been trading within a narrow range. The share price is up by around 1.6 percent year-to-date, and domestic brokerages remain positive on the company's long-term prospects.

Tech Mahindra: Tech Mahindra's Q4FY23 results were in line with revenue and deal intake expectations, but it fell short of market expectations on margins. The company's YoY growth in constant currency terms was 3.7 percent. However, this was below the expectations of most analysts.

Despite the lower-than-expected margin, Tech Mahindra's higher payout, with a dividend yield of more than 5 percent, and over 4 percent free cash flow yield is expected to support its valuations. HDFC Securities has maintained an 'Add' rating on the stock and revised its target price down to Rs 1,060, based on a 15 times P/E multiple on December 2024 earnings per share, with a projected 14 percent EPS CAGR over FY23-25E.

At present market levels, Tech Mahindra is trading at 16.1 times and 13.3 times FY24E and FY25E EPS, respectively. Axis Securities recommends a 'Hold' rating on the stock and assigns a 15 times P/E multiple to its FY25E earnings of Rs 66.5 per share to arrive at a target price of Rs 1050 per share, which implies a further upside of 5 percent from current market levels.

HCL: Indian IT services company HCL Technologies has reported a constant currency revenue decline of 1.2% quarter-on-quarter for Q4, which is in line with analysts' estimates. However, the earnings before interest and taxes (EBIT) margin decreased by 140 basis points to 18.2%, mainly due to software seasonality, but was slightly better than analysts' estimates of 18.1%.

HCL Tech's stock price has risen by 2.1 times over the past five years from INR 458 in April 2018 to INR 1,050 levels in April 2023.

ICICI Direct has maintained a 'Buy' rating on the stock, with a target price of INR 1,220, which is 19 times P/E on FY25E EPS.

Sharekhan has stated that HCL Tech is trading at a discount to its peers, and the brokerage has maintained a 'Buy' rating on the stock with a revised target price of INR 1,175. At the current market price, the stock trades at 18.7 times its FY2024E EPS and 16.9 times its FY2025E EPS.