TCS, HCL Tech, Infosys, LTIM, To Consider Dividends For FY24; Strong Orders To Drive Q2FY24

IT companies are all set to kick start the September 2023 (Q2FY24) quarterly earnings season with Tata Consultancy Services (TCS) financial results on October 11. Other peers like HCL Tech, Infosys, LTIMindtree and L&T Technology Services have already declared the dates of their Q2 results. But not just that a host of these companies are also looking to reward shareholders with interim dividends for FY24. IT sector is among high dividend-paying stocks. Morgan Stanley has recently raised its target prices for major Indian IT firms due to a strong outlook on F25 revenue growth, improving margins and double-digit EPS growth should keep valuations afloat.

Q2 results dates:

TCS will be the first among IT companies to declare its Q2 earnings report on October 11. This Tata Group-backed flagship firm will be followed by HCL Tech and Infosys earnings on October 12. Furthermore, the L&T Group-backed L&T Technology Services will announce its Q2 on October 17, and LTIMindtree on October 18. Azim Premji-backed Wipro and also Persistent Systems will declare their earnings on October 18.

Further, Coforge and Mphasis will declare their earnings on October 19, followed by Tech Mahindra on October 25.

Others will follow suit.

Which IT companies will be considering interim dividends?

TCS, HCL Tech, Infosys, L&T Technology, and LTIMindtree will consider dividend payouts during the day of their Q2 results announcements. Some of them have already fixed record dates for determining eligible shareholders for the dividend benefits.

The largest IT company, TCS fixed October 19 as the record date for the second interim dividend to equity shareholders for FY24. While HCL Tech fixed October 20, and LTIMindtree fixed October 27 as the record date.

HCL Tech has already paid 1400% or Rs 28 per share dividend in H1FY24, while the company paid a whopping 2400% dividend or Rs 48 per share in FY23.

TCS paid a 900% or Rs 9 per share dividend in Q1 of FY24, after paying the largest dividend in the sector to the tune of 11,500% or Rs 115 per share in FY23. On the other hand, Infosys paid a 680% dividend amounting to Rs 34 per share in FY23, LTIMindtree paid a huge 6,000% dividend or Rs 60 per share, and its sibling L&T Tech paid 2250% dividends valuing Rs 45 per share in the financial year 2022-23.

Which IT stocks to buy ahead of Q2 earnings and dividends?

In its research note dated September 26, Morgan Stanley on the leading Indian IT companies said, "We cite stabilizing macro risks, bottoming-out of hyper scalers revenue growth, rebound in BFSI spend in CY24, the announcement of large deal wins, and strong 2QF24e order bookings to be the factors behind our higher-than consensus revenue growth forecasts for F25."

Stanley's note said, "We believe margins have more tailwinds in FY25e (falling attrition rates, sub-optimal utilization rates, room to improve employee pyramid and operating leverage). Within large caps, we see employee +subcon costs as % of revenues to have the largest room to improve for HCLT and TCS."

Further, Stanley's note added, "We expect current P/E valuation (closer to 5-year avg.) to be sustained, owing to: a) double-digit EPS growth in F25, b) under ownership by both domestic institutional investors (DII) and foreign institutional investors (FII) (although ownership is increasing)."

In regards to order book within large-cap space, Stanley's note said, "We like HCLT (mid-single-digit revenue growth in F24e with a resilient margin profile), followed by LTIM (room to surprise in 2H on both growth and margins) and Infosys (healthy order book to support F25 outlook). We maintain our EW on TCS and Mphasis, owing to valuations. We downgrade Tech M to UW, as strong outperformance is behind us and we see potential downside risk to EPS. We upgrade CYL to OW, owing to EPS upgrades, led by resilient margins and low expectations on revenue growth. We maintain our UW on Tata Elxsi, LTTS and Wipro."

However, BFSI continues to be a spoilsport for the IT segment. Stanley's note highlighted among key drawbacks are --- P/E multiple corrects owing to weak tech spends in BFS persisting through CY24, and macroeconomics risks delaying the recovery cycle for IT services.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.