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Dolat Capital Report
We anticipate another subdued quarter with revenue growth of -1.5% to +1.4% QoQ in constant currency terms amongst our tier-I IT names, and 2.3% to 4.9% CC growth for tier-II names for Q4 FY24E, amid delayed revenue conversion and muted demand environment.
Ebit margin is expected to improve sequentially for most IT companies driven by cost optimisation initiatives partially offset by sustained furloughs impact and will see QoQ movement of -50 basis points to +210 bps in Q4 FY24E.
Our interactions with industry participants indicate banking, financial services and insurance and communication, media and technology continue to reflect pain especially in U.S. led by weak macro environment as well as cost cutting program as highlighted by large banks such as Barclays, Citibank, etc. in their earning's call.
We continue to maintain a cautious stance in the near term, as we anticipate that the subdued deal wins, and delayed revenue conversion will have an impact on growth in Q4/Q1.
The NIFTY IT index declined sequentially (-2.2%) in Q4, and we anticipate it to remain under pressure, as any recovery in discretionary spending will likely have a time lag of a few quarters.
Our preference is for large caps, given lower risk to estimates/price-to-earning ratio.
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