Infosys, TCS rally up to 7% post Q3 results; brokerages remain optimistic

The silver lining of the performances of these companies during the quarter was the total contract value (TCV) signed, which continued to show a healthy momentum.

Shares of information technology (IT) giants Tata Consultancy Services (TCS) and Infosys rallied up to 8 per cent on the BSE during Friday's intraday trade.

This came after the companies had reported their December quarter (Q3 FY24) results, post market hours on Thursday.

Infosys surged 7.93 per cent to Rs 1,612.75, while TCS gained 3.94 per cent to Rs 3,882.80 on the BSE. In comparison, the BSE Sensex was up 1.18 per cent to 72,568 points.

What boosted sentiment was that both the IT majors delivered better-than-expected results. Street expectations for the IT sector were low, given macro concerns and lower working days.  While constant current revenue for Infosys declined by -1.0 per cent quarter-on-quarter (Q-o-Q), it was better than Street estimates of -1.6 per cent.

Revenue for TCS was up 1.1 per cent sequentially, which was higher than estimates that pegged it at 0.1 per cent.

PhillipCapital Research has upgraded Infosys to a buy. “We believe that the earnings downgrade cycle, which lasted for the last three quarters in Infosys, is behind us. We expect a gradual pickup in discretionary spending by clients starting H1 FY25. Year-to-date or YTD total contract value (TCV) at $13.24 billion is the best ever and provides visibility for growth pickup in the medium term.”

On TCS, the brokerage expects it to continue to command a valuation premium to its peers.

This is on the back of its strong diversified profile, superior return profile (return on equity or ROE of 46 per cent in FY23), management stability, strong margins and market leadership position.

Brokerages also highlighted the positive long-term outlook by the TCS management due to a strong momentum in deal wins, client’s focus on tech-led transformation and strong pipeline.

Nuvama Research said the management called out the bottoming out of its banking, financial services and insurance (BFSI) vertical — a big read across for the entire sector.

It upgraded FY24/25 earnings per share estimates by 1.4 per cent each and FY26 earnings per share by 1.7 per cent. TCV continued to show a healthy momentum. For TCS, the TCV for Q3 came in at $8.1 billion, up 3.8 per cent from $7.8 billion it signed in Q3 of FY23. On a sequential basis, the TCV was down from $11.2 billion in the second quarter. On YTD basis, TCV for TCS remains at record high at $29.5 billion (up 22 per cent Y-o-Y) with book to bill of 1.4x. Infosys' TCV of $3.2 billion was down from $3.3 billion in the same period last year.

Infosys posted a net profit of Rs 6,106 crore for Q3 FY24, showing a drop of 7.3 per cent from the same period last year. The company's profit was down 1.7 per cent, sequentially (Q-o-Q).

Infosys cut its revenue growth guidance for the third straight quarter.

It now expects revenue for FY24 to grow in the range of 1.5-2 per cent, revised from the earlier estimate of 1-2.5 per cent growth.

TCS reported a 2 per cent rise in Y-o-Y net profit at Rs 11,058 crore for Q3FY24.

The company saw a revenue growth of 1.5 per cent Q-o-Q and a growth of 4 per cent Y-o-Y at Rs 60,583 crore. TCS reported Q3FY24 revenues at $7,281 million, up 2.9 per cent Y-o-Y in dollar terms and 1.7 per cent in constant currency. It does not give any revenue guidance.

TCS declared a third interim dividend of Rs 9 and a special dividend of Rs 18 per equity share.

Analysts at Choice Broking expect strong deal momentum resulting in a solid order book, providing visibility for long-term growth. There has been tremendous client interest in generative artificial intelligence (GenAI) and TCS is leading the innovation and exploratory efforts for it.

For Infosys, the brokerage firm said the company is concentrating on securing substantial deals to propel further growth.

Higher adoption of next-generation AI, such as TOPAZ and Cobalt cloud, is anticipated to generate long-term value for the business.

The management is actively engaged in cost optimisation efforts with the aim of enhancing margins and ensuring financial efficiency, it added.

Given its size, order book and exposure to long-duration orders and portfolio, TCS is well positioned to withstand the weakening macro environment and ride on the anticipated industry growth.

Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios, Motilal Oswal Financial Services (MOFSL) said in the result update.

The brokerage firm expects FY24 revenue growth to be at 1.9 per cent Q-o-Q in constant currency, near the upper band of the guidance.

Despite near-term weakness, MOFSL expects Infosys to be a key beneficiary of the acceleration in IT spending in the medium term.

Nifty IT index rises 5.1%
 

Led by Infosys and TCS, Indian IT stocks saw healthy gains on Friday. The Nifty IT Index, a gauge tracking tech companies, rose 5.1 per cent. Friday's gain in the IT index 
 

was the best since January 19, 2022. When Infosys was the top gainer in the Nifty IT Index with gains of 7.93 per cent, other con­stituents such as Coforge, Tech Mahindra, and LTI Mindtree too registered gains of 5.68 per cent, 4.69 per cent and 4.65 per cent respectively. The BSE IT index too rose 5.1 per cent on Friday — its biggest single-day gain since April 30, 2020. The index closed at 37,120, its highest close since January 19, 2022. 

 

TCS reported a revenue growth of 1.5 per cent on a quarter-on-quarter basis and an increase of 4 per cent on a year-on-year basis. The TCS revenue for the quarter came in at ~60,583 crore, better than the consensus estimates. Analysts said a bit of short covering could have contributed to the rise as worse results were expected.  So far this year, the IT index has risen 2.8 per cent.