Shares of midcap information technology (IT) companies like Coforge, Cigniti Technologies, Persistent Systems, and Zensar Technologies rallied up to 11 per cent on the stock exchanges today. The rally in midcap IT stocks today came after the pack reported a good set of numbers for the quarter ended December 2024 (Q3FY25)
At 09:37 AM, BSE IT index, the top gainer among sectoral indices, was up 1.4 per cent as compared to 0.17 per cent decline in the BSE Sensex.
Among individual stocks, Cigniti Tech share price surged 11 per cent to Rs 1,650 on the BSE in Thursday’s intra-day trade after the company’s earnings before interest tax (Ebit) margin improved 335 bps year-on-year (Y-o-Y) and 136 bps quarter-on-quarter (Q-o-Q) in Q3FY25.
The company’s profit after tax (PAT) jumped 32.3 per cent Y-o-Y and 20.1 per cent Q-o-Q at Rs 63.6 crore. Gross revenue grew 10.3 per cent Y-o-Y and 3.5 per cent Q-o-Q at Rs 516.40 crore. The company said it had a fresh order intake of $82.9 billion in Q3FY25, as compared to $67.1 billion in Q2FY25 and $78.3 billion in Q3FY24.
Meanwhile, Coforge share price rallied 10 per cent to Rs 9,034 per share after it reported a revenue growth of 40 per cent Y-o-Y and 8.4 per cent Q-o-Q in constant currency (CC) terms. Adjusted profit was up 10.3 per cent Y-o-Y at Rs 268 crore.
“A large deals pipeline, that is looking very robust, and finally an ever strengthening next twelve month signed order book, which now is 40 per cent higher Y-o-Y, gives us confidence that the coming year shall once again see robust and sustained growth,” said Sudhir Singh, chief executive officer and executive director, Coforge.
Growth was supported by the Cigniti acquisition, which delivered 3.5 per cent CC Q-o-Q growth, while margins were led largely by Cigniti Ebitda margin of 17.3 per cent, which was up 100bps Q-o-Q. Coforge’s core margins remained weak, ICICI Securities said in a note.
Nonetheless, a robust large deal pipeline, including four new large deals this quarter, and a strong order book position the company well for sustained topline growth. Synergies from the acquisition will be a key focus area, while core margins recovery will be key monitorable ahead, the brokerage firm said in a note.
Persistent Systems share price, too, soared 8 per cent to Rs 6,163.45 per share after the company reported broad-based growth across geographies and segments. The management remains committed to its FY27 revenue target of $2 billion (implying a 19 per cent compound annual growth rate (CAGR) over FY24-27) and has introduced an ambitious FY31 target of $5 billion (implying a 22.8 per cent CAGR over FY24-31), likely incorporating an inorganic growth component.
While Healthcare ramp-down and short-term headwinds in the sector may lead to some slowdown, Motilal Oswal Financial Services (MOFSL) expects BFSI and Hi-Tech to be the fastest-growing verticals for the industry overall and for Persistent Systems as well. The brokerage firm was enthused by the management’s continued guidance of achieving $2 billion in revenue by FY27, making Persistent Systems one of the fastest-growing companies in the industry.
The stock is currently trading at an admittedly expensive valuation. That said, owing to its superior earnings growth trajectory, on a PEG basis, MOFSL believes valuation still has room for upside. It reiterated its ‘BUY’ rating on the stock with a target price of Rs 7,600.
Meanwhile, to achieve these goals, Persistent Systems has outlined a strategic roadmap that includes – segmenting its verticals into sub-verticals for deeper focus, doubling down on its Top 100 clients (which currently contribute ~80 per cent of revenues), strengthening its engagement with GCCs and infusing AI into every aspect of its service offerings. ICICI Securities believes these initiatives position the company well for sustained growth and justify its premium valuation.
The brokerage firm maintained its positive view on the company.
Further, shares of Zensar Technologies rallied 9 per cent to Rs 819.90 per share on the back of a five-fold jump in average trading volumes after the company reported in-line with revenue growth in Q3, led by strong growth in Healthcare and BFSI.
The company achieved its highest-ever order book of $205 million in Q3FY25, with a book-to-bill ratio of 1.3x, supported by broad-based deal wins. Notably, this was the second consecutive quarter of more than $200 million in order bookings.
The management is seeing early signs of improvement in discretionary spend (in-line with the commentary given by its large cap peers as well). A significant portion of the order book is derived from the BFSI segment in Europe. This, coupled with a broad-based order book, improved win rates, and a strong pipeline (on an absolute basis) bolsters confidence in sustained growth momentum going forward, ICICI Securities said.
The management acknowledged fewer working days as a potential headwind for Q4 but expects this to be offset by lower leaves. The TMT and BFSI saw a degrowth this quarter, primarily because of furloughs. The focus remains on reducing dependence on TMT, increasing annuity-based revenues to mitigate revenue fluctuations and farming/mining clients, the brokerage firm said in a note.
Management noted that discretionary spending is gradually recovering. This recovery aligns with client interest in emerging technologies such as GenAI and Agentic AI, which Zensar has proactively embraced through its innovative AI solutions. Despite macroeconomic uncertainties, MOFSL believes early signs of client optimism suggest that discretionary spending could further accelerate if these technologies gain widespread adoption.
The brokerage firm believes the company’s exposure to the Hi-Tech vertical could continue to weigh on growth in the near-term; however, it will be offset by a recovery in BFS.
Disclaimer: Moneywealth research provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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