IT Sector Analysis - Showing First Signs of Revival | Q1FY26
We expect some revival in earnings across IT players with high exposure to the US as deal wins have improved amid better discretionary spends. The tariff threat in Q4FY25 had stalled projects and delayed spends but that seems to be reversing. Our interaction with laterals suggests that the demand environment has improved in the US even though we should get more clarity by H2FY26. Companies focused on AI and Cloud are seeing some use cases come through, with major impact to be seen in 12-18 months. Demand for banking products continue to be strong in India & APAC. HPC’s, private cloud and AI also continue their strong growth in the Indian market. For the PC & IT peripherals demand we expect some revival in H2FY26, while demand should remain muted for Q1FY26. Our pecking order will be Netweb (Strong enterprise growth), Aurionpro Solutions (Banking segment growth), R Systems (Deal wins), Saksoft (consolidation), and Rashi Peripherals (strong H2).
Companies under our coverage from IT sector:
Netweb Technologies:
Netweb is expected to deliver a strong Q1 on the back of good momentum across HPC’s, Private cloud and AI systems. We expect some spillover from Q4FY25 to aid growth in Q1. Margins to remain in the range of 14-15% on the back of cost optimization. We expect enterprise segment to be strong, while government segment to see modest growth (in-line with yearly trend).
Aurionpro Solutions:
Aurionpro Solutions is expected to deliver another strong quarter, with Banking leading the way in Q1. Deals wins across Sri Lanka, APAC and Saudi Arabia are going to help the Banking segment show strong growth in Q1. We expect orderbook to grow 4% to Rs 14.5 Bn and margins to be in the range of 20.5-21%. We expect deal wins to improve going ahead especially in the TIG segment and for Arya.ai.
R Systems:
R Systems is expected to bounce back after delivering a de-growth in Q1CY25. We expect 4.4% cc growth QoQ on the back of strong deal wins and better execution. Q1 was impacted by delay in decision making by SMBs due to uncertainty related to tariffs. Q2 has seen companies start spending and have discussions related to AI, Cloud and data modernization. We expect margins to remain in the range of 15.5-16%.
Saksoft:
Saksoft delivered a strong Q4, and we believe the company will continue to consolidate all its acquisitions done in FY25. We expect 3% QoQ growth on the back of strong deal win momentum. We expect margins to improve on the back of lower employee addition vs Q4 and cost optimization measures.
Rashi Peripherals:
We expect Rashi Peripherals to deliver high single digit growth on a YoY basis (excluding the one-time Yotta deal in Q1FY25). Demand for PC’s, desktops and peripherals continue to remain subdued on the back of delay in refresh cycle from enterprises and low demand for AI PCs. We expect margins to be in the upper range of 2.5-3%.
Valuation & Risks:
We expect Netweb, Aurionpro and R Systems to deliver a strong quarter, while Saksoft continues its momentum and Rashi see’s slower growth. Our pecking order will be Netweb (Strong enterprise growth), Aurionpro Solutions (Banking segment growth), R Systems (Deal wins), Saksoft (consolidation), and Rashi Peripherals (strong H2).
Key risks:
Slowdown in orderbook for Aurionpro, lower pipeline/orderbook growth for Netweb, lower deal wins for R Systems and Saksoft, lower growth for Rashi on the back of muted demand.
Sector Analysis by
- Vinay Menon - Research Analyst
- Miloni Mehta - Research Associate
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