“Among Tier-I players, we prefer HCLT and LTIM for their strong capabilities in data engineering, ER&D offerings (HCLT) and ERP modernization, making them well-suited for pre-GenAI spending. For Tier-II players, our top picks are PSYS and COFORGE, both poised for strong performance,” said the domestic brokerage firm in its report.
Despite the uncertainties related to the Cigniti integration, Motilal Oswal believes that Coforge is likely to realize cost synergies sooner than expected, which could lead to upside risk to its estimates.
HCL Technologies: Buy| Target price: Rs 2,200| Upside potential: 21.6%Motilal Oswal expects HCL to report a flat revenue on QoQ basis and stable trend in TCV while the margins are likely to increase 30bp QoQ due to pyramid gains and the release of some productivity commitments. Further, broad-based growth across geos and verticals, excpt BFSI, is expected owing to State Street divestment. The company is likely to retain its FY25 revenue growth guidance of 3-5%.
LTIM is expected to report 3.0% constant currency growth in 2Q, mainly driven by BFSI (banking) and manufacturing. Manufacturing should perform similarly, while BFSI will benefit from US banking growth. BFS customers are increasing spending on key projects, especially in regulatory compliance. Margins should improve by 80 basis points quarter-over-quarter, due to no wage hikes and better operating efficiency. In 2QFY25, demand trends, BFSI performance, and margins will be key focus areas.
Motilal Oswal expects revenue growth of 4.5% QoQ CC, aided by continued momentum in Healthcare and ramp-up of large deals in the vertical. Additionally, a healthy deal momentum is likely to continue, with continued strength in healthcare followed by BFS vertical. Margins are expected to decline by 40bp QoQ. Pressure from wage hikes to be partially offset by cost optimization measures such as utilization and continued SG&A discipline. Commentaries on recovery in hi-tech vertical are the key things to monitor.
The domestic brokerage firm expects the revenue growth is to be 4% QoQ CC and also expect an acceleration in growth from 2Q onward as deal ramp-ups accelerate.. The key thing to watch out for is further clarity on the integration of Cigniti and its performance, as well as demand environment in BFS and Insurance (53.2% of revenue). Company’s EBIT margin is expected to decline 100bp QoQ due to wage hike impact and decline in utilization. 10% CC growth for FY25E is expected for the company.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
