HSBC flags decline in cash conversion across IT industry in FY25

In FY25, IT companies struggle with cash conversion

The March quarter (Q4 FY25) earnings for Indian IT companies have painted a mixed picture. While revenue growth has held steady for most large-cap players, a growing concern is the weakening trend in cash conversion, particularly in the mid-tier space in FY25, said analysts at HSBC.

Cash conversion refers to a company’s ability to translate its net profits into actual cash flow from operations. It’s a key marker of financial health, revealing how efficiently a business collects receivables, manages costs, and generates liquidity from its earnings.

Top-tier companies like TCS, while posting stable earnings, have seen a consistent decline in their cash conversion metrics. Though the company remains fundamentally strong, this trend has raised red flags about rising working capital needs or possible delays in client payments.

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Among mid-sized IT firms, Coforge and Persistent Systems stand out as the weakest performers in terms of cash conversion in FY25, noted HSBC analysts.

Throughout FY25, investors continued to reward growth - stock prices remained resilient, even when cash flows lagged.

Analysts suggest that while markets have long focused on headline revenue growth and margin performance, there’s now a gradual pivot toward deeper scrutiny of balance sheets. In an environment of tighter liquidity and cautious enterprise spending, the ability to generate cash is becoming as critical as winning deals.

In terms of quarterly performance, TCS reported revenue of Rs 64,479 crore in Q4 FY25, a 5.3 percent increase year-on-year. However, its net profit fell by 1.6 percent to Rs 12,224 crore.

Infosys posted revenues of Rs 40,925 crore in the March quarter, up 7.9 percent from the same period last year. Net profit declined by 11.8 percent to Rs 7,033 crore. Meanwhile, Coforge delivered strong top-line growth with Q4 revenues rising 47 percent year-on-year to Rs 3,409.9 crore. Net profit rose 16.5 percent to Rs 261 crore.

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