Can India’s Top IT Services Companies Bounce Back in FY25?

Posted by : Ketan Sonalkar | Mon May 06 2024

Can India’s Top IT Services Companies Bounce Back in FY25?

Top IT Services Companies’ YOY Revenue and Net Profit Growth in Q4FY24

The IT sector is among the largest wealth creators for investors over the last decade. Of late, the sector seems to have lost its edge and the results for the last few quarters indicate a decline in the revenues as well as the earnings. This sector witnessed a surge four years ago with the onset of the pandemic in 2020. This was accompanied by a stellar rally across the board in this sector for a year and a half.

However, over the last two years, the sector has seen a decline in intrinsic values across most of the large and mid-cap IT services companies. Let’s delve into the Q4FY24 results of the leading IT companies and identify what is working well and what is not.

Top IT Services Companies

Except for Infosys, which saw the highest YoY net profit growth at 30%, and TCS with 9.15% rest of the companies saw a decline in YoY net profits. In the case of Infosys, despite the profit growth, the management has guided for growth between 1%-3% for the next fiscal, turning down the investor sentiment.

The deal wins for most companies have been strong, which is a silver lining to the results. TCS CEO, Krithivasan in a Q4FY24 presentation said that TCS has a pipeline of generative AI projects worth $900 million. He also said that since the launch of its AI. Cloud business unit, TCS, has witnessed more traction in the marketplace.

Infosys said its large deal total contract value (TCV) for the quarter was $4.5 billion, with 44 percent being net new deals.

In Q4FY24, attrition was the highest for Wipro followed by Infosys and then TCS. Despite the decline in attrition, the year-end headcounts reflect a significant reduction for Infosys, Wipro, and TCS for the first time in over a decade. HCL Tech being an exception added employees during the period and the financial year.

Top IT Services Companies

The returns on IT stocks also display an interesting pattern. All the top 5 companies have delivered above 15% returns over the last year with HCL Tech delivering the highest at 38%. But over the last quarter, TCS has been flat while all the others have seen a fall in their stock prices. This was also due to the expectation of weak results in Q4FY24. However, as we now stand at the start of FY25, can this sector bounce back or will it continue to face challenges?

On the positive side, the companies have been quick to adopt newer technologies and the recent deal wins seem to suggest higher deals in technologies like generative AI and cloud. The partnerships of some of the global IT giants with some of the Indian firms remain strong and we could see higher deal wins in coming quarters.

While FY24 remained a tepid year for the IT sector, there are signs that the worst is probably over. With agility shown by the sector and taking the lead in the adoption of the latest technologies, there is a likelihood that FY25 will see an improved performance from the IT majors as compared to the previous year.

Disclaimer: This is for general information and education purposes only. The Securities quoted (if any) are for illustration only and are not recommendatory. Past performance does not guarantee any future returns. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. For more details/disclosures, visit univest/univest mobile application.

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