 "Midcap IT in focus: Coforge, Persistent, Cigniti rally up to 11% post Q3")
Shares of midcap information technology (IT) companies like Coforge, Cigniti Technologies, Persistent Systems, and Zensar Technologies rallied up to 12 per cent on the stock exchanges on Thursday. The rally in midcap IT stocks came after the pack reported a good set of numbers for the quarter ended December 2024 (Q3FY25).
Among the larger listed IT companies, Wipro posted gains of 2.8 per cent while LTIMindtree was up 2.4 per cent. The Nifty IT index was the second-highest gainer among the key Nifty sectoral indices. In addition to strong Q3 results by the midcap companies, large private sector investments to fund infrastructure for artificial intelligence in the US also boosted sentiment for the sector.
Share price of Cigniti Technologies surged 11.8 per cent to Rs 1,665 on the BSE after the company's earnings before interest tax (Ebit) margin improved 335 basis points year-on-year (Y-o-Y) and 136 basis points quarter-on-quarter (Q-o-Q) in Q3FY25.
The company's profit after tax (PAT) jumped 32.3 per cent Y-o-Y and 20.1 per cent Q-o-Q to Rs 63.6 crore. Gross revenue grew 10.3 per cent Y-o-Y and 3.5 per cent Q-o-Q to Rs 516.40 crore. The company said it had a fresh order intake of $82.9 million in Q3FY25 as compared with $67.1 million in Q2FY25 and $78.3 million in Q3FY24. Coforge owns a majority stake in Cigniti Technologies.
Meanwhile, Coforge share price also rallied 11.33 per cent to Rs 9,156 per share after it reported revenue growth of 40 per cent Y-o-Y and 8.4 per cent Q-o-Q in constant currency (CC) terms. Adjusted profit was up 10.3 per cent Y-o-Y at Rs 268 crore.
Growth was supported by the Cigniti acquisition, which delivered 3.5 per cent CC Q-o-Q growth, while margins were led largely by Cigniti operating profit margin of 17.3 per cent, which was up 100 basis points Q-o-Q. Coforge's core margins remained weak, ICICI Securities said in a note.
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Nonetheless, a robust large deal pipeline, including four new large deals this quarter, and a strong order book positions the company well for sustained top line growth. Synergies from the acquisition will be a key focus area, while core margins recovery will be key monitorable ahead, the brokerage added.
Commenting on the results of Persistent Systems (stock up 10.6 per cent in trade), Motilal Oswal Financial Services (MOFSL), points out that revenue growth in the quarter was strong and broad-based. Unlike in previous quarters when the healthcare deal ramp-up was the key driver, revenue growth in Q3FY25 was broad-based. BFSI, Healthcare, and Hi-Tech all registered healthy growth of 4.9 per cent, 4.3 per cent and 3.7 per cent, respectively, says the brokerage.
The company continues to guide for a FY27 revenue of $2 billion which implies a 19 per cent revenue growth annually over FY24-FY27, making it one of the fastest-growing companies in the sector. The company is guiding for a revenue target of $5 billion by FY31 which will translate into a 25 per cent annual growth from FY27-31.
Shares of Zensar Technologies rallied 11.6 per cent to Rs 838 per share on the back of a five-fold jump in average trading volumes after the company reported in-line results with revenue growth in Q3, led by strong growth in Healthcare and BFSI.
The company achieved its highest-ever order book of $205 million in Q3FY25, with a book-to-bill ratio of 1.3x, supported by broad-based deal wins. Notably, this was the second consecutive quarter of more than $200 million in order bookings.
The management is witnessing early signs of improvement in discretionary spending (in line with the commentary given by its largecap peers as well). A significant portion of the order book is derived from the BFSI segment in Europe. This, coupled with a broad-based order book, improved win rates, and a strong pipeline (on an absolute basis) bolsters confidence in sustained growth momentum going forward, ICICI Securities said.