Till now July-25-2024, nineteen Nifty 50 companies have reported their Q1 earnings while 31 others are yet to report it. Many high weightage companies in key index already reported their Q1 so keeping a report of their performance is necessary as it will provide a cue of how will index move going ahead. IT giant TCS started the earning season for Nifty 50 while sector wise Banks, NBFCs, FMCG, IT, insurance and consumer companies in the index reported earnings.
Nifty 50 IT companies Q1 report card
IT Companies
Tata consultancy services (TCS)
TCS reported Q1 numbers In-line street expectations,
- company’s revenue from operations grew by 5.2% to 62,613cr and profit grew by 9 percent year-on-year to ₹12,040 crore. EPS was at 33.28, sequentially down but growth YoY.
- The consolidated operating margin for the reported quarter was 24.7%, reflecting a year-over-year expansion of 1.5%.
- TCS reported total contract value of $8.3 billion, marking declines both Yoy and sequentially. In the previous quarter, TCS had achieved a record high quarterly order book of $13.2 billion.
In terms of valuation, after the recent run-up TCS looks fully priced as the stock is currently trading at a p/e of 35 against its 5 years average of 25-41. Management comments were pointing that there is still uncertainty around discretionary spending and overall macro picture so FY-25 will be a year of modest growth. Our forecast is TCS will have an EPS of 136-140 in FY-25 and we assign a 1 year forward p/e of 35 (optimistic case scenario), so stock should trade in the range of 4760-4900 in next one year.
HCL Technologies
HCL Tech another giant from IT pack was the 2nd company to announce earnings from Nifty 50 pack, HCL tech though reported a beat in Bottomline against street expectations but that was largely due to one time gain from some subsidiary divestment.
- Revenue from operations at Rs 28,057cr, up 6.7 per cent as against Rs 26,296cr, PAT of Rs 4,257cr for the quarter, which translates to YoY growth of 20.4% but It was due to one time profit of sub. divestment, rest there was a moderate growth in PAT.
- Company expects FY25 annual revenue to grow between 3 per cent and 5 per cent. The company also expects services revenue growth to be between 3 per cent and 5 per cent YoY in CC and EBIT margin to be between 18.0 per cent and 19 per cent.
HCL Tech is trading at a p/e of 27.3 against a 5 year average of 19-39, With the kind of growth co’s management is predicting, our forecast is it will do an EPS of 60-61 and at the p/e of 28 it should trade between 1680-1708 in next 12 months. This gives a very limited upside to the stock from CMP.
LTI Mindtree
Another Nifty 50 stock and 6th largest IT stock LTIM reported mixed set of Q1 earnings, Consolidated
- Net Sales at Rs 9,142.60cr in June 2024 up 5.06% from Rs. 8,702.10cr YoY.
- The company reported a net profit of Rs 1,135 crore for the Q1, a dip of 1.5 per cent on YoY basis.
- The company signed a total contract value worth $1.4 billion, this was similar to last quarter.
- The EBIT margin for the quarter came in at 15%, up from 14.7% in the last quarter.
- For business outlook management pointed out that ,momentum of Q1 is expected to continue in Q2, with a focus on cost takeout and high-priority transformations but did not provided a definitive guidance for future revenue growth.
In terms of valuation, stock is trading at a p/e of 36.6 against a 5 year average of 25-55, Looking at the strong commentary, we forecast 6-8% growth in EPS so EPS in FY25 will be in the range of 164-167.5, by assigning a p/e of 38 the stock should trade in the range of 6232 to 6365 in next 12 months.
Infosys
India’s 2nd largest IT company Infosys reported strong set of Q1 earnings, consolidated
- Revenue at 39,315cr, in CC (constant currency) terms grew by 2.5% YoY and by 3.6% QoQ,
- Operating margin at 21.1%, growth of 0.3% YoY and 1.0% QoQ,
- Basic EPS at ₹15.38, increase of 7.0% YoY,
- FCF at ₹9,155 crore, growth of 59.2% YoY; FCF conversion at 143.6% of net profit. In dollar terms FCF at $1.1bn and TCV at $4.1bn, both at highest level ever,
- In terms of guidance for FY25, Infosys surprised experts by revising it to 3-4% from earlier given 1-3%,
- Guidance for operating margin of 20%-22%.
Currently Infosys is trading at a P/E of 28.38 against it 5 year average P/E of 19-39. Our forecast suggests that Infosys will do an EPS of 65-66 in FY25 so at one year forward valuation, it is trading at a FY25E* P/E of 27.1. In optimistic case we are assigning a P/E of 30 to Infosys on our forecasted EPS of 65-66 in FY25, giving a target price of 1,950-2,000.
Wipro
Wipro was the only stock disappointing the street with its Q1 earnings, All other It companies in Nifty 50 either reported in-line or above expectation numbers but Wipro apart from its topline growth also disappointed with guidance.
- Gross revenue was at ₹21,963cr ($2,635.8 mn), a decrease of 1.1% QoQ and 3.8% YoY.
- IT services segment revenue was at $2,625.9mn, a decrease of 1.2% QoQ and decrease of 5.5% YoY.
- Constant currency IT Services segment revenue decreased 1.0% QoQ, and 4.9% YoY.
- Total bookings was at $3,284 mn. Large deal bookings was at $1,154 mn, down 3.1% QoQ and 3.6% YoY.
- IT services operating margin for the quarter was at 16.5%, an increase of 0.1% QoQ and 0.4% YoY.
- Net income for the quarter was at ₹30.0bn ($360.4 mn), an increase of 5.9% QoQ and 4.6% YoY.
- Earnings per share for the quarter was at ₹5.75 ($0.071), an increase of 5.9% QoQ and 9.9% YoY.
- Operating cash flows of ₹40.0bn, an increase of 6.5% YoY and at 131.6% of Net Income for the quarter.
The stock of Wipro is currently trading at a P/E of 26.3 against a 5 year average of 14-42. Our forecast is Wipro will do an EPS of 23-24 in FY25 and giving it a P/E of 25 (estimate) the target price should be between ₹575-600 (forecast based on the guidance provided by the company, we are making an optimistic case while forecasting the EPS).
Tech Mahindra
The Nifty 50 company reported their Q1 earnings earlier in the day and the numbers were not too much impressive. Similar to Wipro, Tech M is also having a top leadership transition and things may take some time for the company to play out when compared to other large cap IT companies in Nifty 50.
- Revenue at 13,005 crores; up 1.0% QoQ, down 1.2% YoY
- EBITDA at 1,564 crores; up 11 .1 % QoQ, up 16.9% YoY; Margin at 12.0%, up 110 bps QoQ, 190 bps YoY
- Consolidated PAT at 851 crores; up 28.8% QoQ, up 23.0% YoY
- Earnings per share (EPS) at 9.62,
- Cash and Cash Equivalent at INR 8,055 er as of June 30, 2024,
- Total TCV Q1 FV25: $534 Mn
Click to read more on Tech Mahindra’s Q1 updates
Conclusion-
IT companies listed on Nifty 50 are showing the signs of recovery in their Q1 earnings but management commentary is still uncertain about when discretionary spending will be back by clients and most of these companies are remaining vigilant on macro uncertainties. Though it is visible that this FY will be a year of recovery for these companies but a lot will depend on how their earnings shape up in next few quarters.
