ECONOMICTIMES.COM | 17 Jan, 2014, 01.27PM IST
Which is a better bet: TCS or Infosys? "Well, the order of preference is always tricky and difficult. TCS has a lot more visibility, whileInfosys has some concerns around organisational issues, and valuation gap is also there." says Gautam Chhaochharia, Head-India Research, UBS.
"Comparing TCS with Infosys, the former is trading at a slightly expensive or higher multiple. However, in a sector like IT, I would prefer consistency rather than volatility in performance, which is why TCS would clearly stand out," says Pankaj Pandey, Head Research, ICICIdirect.com.
"From an overall sectoral perspective, we have a neutral outlook on TCS, because we believe that easy money has already been made in the sector. However, having said that, we would expect these set of numbers from TCS to continue. Therefore, we have a target price of Rs 2,450," he adds.
For Tata Consultancy Services (TCS), all basic business indicators are at a peak. This includes return on equity, operating profit margins and utilisation rate. For Infosys, their business indicators are nowhere close to weak. So, if the economic environment improves some would argue that the rate of change will be more constructive for Infosys and not TCS. How true is this?
"I completely agree with that as if you see the consensus numbers for TCS, dollar revenue CAGR is around 19%, the EBIT margin estimate is around 29% and the target multiples is around 19 times; the only upside risk is revenue growth. Something beyond 19% for TCS in the near term; and if the management can give confidence one can expect something beyond that," says Basudeb Banerjee, Research Analyst, Quant Broking.
"One should not discard TCS just because the numbers are at their all-time highs. TCS has always probability of surprising you positively downside," he adds.
"For Infosys, estimate expectation is somewhere around 13-14%. It is still way behind leaders like TCS and Cognizant. So, the scope of a positive surprise from Infosys is definitely there ... Infosys is a turnaround player in terms of both as a rerating candidate and that its dollar revenue growth is moving up. By this logic, Infosys has much higher upside risk from current levels," says Basudeb Banerjee.
Can Infosys go to 6,000 or even 7,000 levels?
"Surely, why not," says Ravi Dharamshi, CIO, ValueQuest Investment Advisors. "We are very bullish on technology per se, and within that Narayana Murthy is the one that has come in and has spelt out the strategy, the strategy is to get cost under control, perform or perish attitude," Ravi Dharamshi adds.
"Utilisations is low, margins are low, they are not firing on all cylinders. The valuations are still at 15-16 times forward. If you believe that NRN can turn this giant ship around and perform, I believe there has enough money to be made in this large-cap only. We can see the stock double over a three-year period," he says.
Is the upside on TCS restricted?
"Yes, our fair value for TCS is 24 times. The stock is already trading at about 20 times on March 2015 basis. You compare that to something like Infosys, which is slightly below 17 times on say March 15 basis. Wipro is more like 16 times. HCL Tech is even cheaper. So, I suspect what you are seeing here is maybe people taking a slightly more positive call on other tier-1 names at the expense of TCS," says Sanjeev Prasad, Senior Executive Director & Co-Head, Kotak Institutional Equities.
"Having said that, TCS will continue to deliver well into the next two years given that the US economic recovery looks very strong and IT spendings will improve. TCS's execution is absolutely fabulous. So, I see no reason why one should be panicking and selling the stock. It should continue to be a part of the core portfolio," he says.
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