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Infosys or TCS: Which stock to buy post March quarter earnings?

Brokerages remained upbeat on both the IT firms, post results.

Updated: Apr 20, 2018, 10.59 AM IST
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CLSA said, “Infosys offers the highest potential for a rerating in the sector.”
With quarterly results out of their way, the big question for Infosys and TCS is which can hold investor attention better. The verdict is out.

TCS on Thursday reported a 5.71 per cent sequential rise in consolidated net profit at Rs 6,904 crore for January-March. Infosys last week posted a 28.2 per cent drop in quarterly net profit at Rs 3,690 crore.

Brokerages remained upbeat on both the IT firms, post results.

CLSA maintained ‘Buy’ on TCS and raised the target price to Rs 3,700 from the earlier Rs 3,250.

Jefferies said best of positives seem to be priced in the stock. “There is management commentary of strong growth in retail in FY19E and green shoots in BFSI,” Jefferies said.

“Strong demand in digital across all industry verticals and large transformational deal wins have made this one of our best fourth quarters in recent years. The strong exit allows us to start the new fiscal on a confident note,” TCS CEO and MD Rajesh Gopinathan said.

Strong deal wins and a good pipeline position TCS very well in the new fiscal, Chief Operating Officer and ED N Ganapathy Subramaniam added.

Digital revenue for TCS accounted for 23.8 per cent of the total pie, up 42.8 per cent yoy.

Sharekhan also has ‘Buy’ rating on TCS, with a target price of Rs 3,500. The stock jumped on Q4 show as the IT major sprinted to a fresh all-time high of Rs 3,325 early on Friday.

“TCS delivered a strong set of numbers in Q4 FY18, with a dollar revenue growth of 3.9 per cent qoq. EBIT margins improved 22 basis points qoq despite higher variable payouts. Digital segment delivers robust performance, making a higher contribution to revenue compared with previous quarters. We are hopeful of Infosys returning to double-digit dollar revenue growth trajectory in FY19, with the targeted margin band of 26-28 per cent,” Sharekhan added.

Most brokerages also maintained a ‘buy’ rating on Infosys though they said the lowering of the EBIT margin guidance for FY19 may be perceived negatively by the market.

The Bengaluru-based company has lowered EBIT margin guidance for FY19 to 22-24 per cent from 23-25 per cent for the previous financial year.

CLSA said, “Infosys offers the highest potential for a rerating in the sector.” The brokerage house maintained ‘Buy’ with a target price of Rs 1,340. Stock of Infosys was 2 per cent up at Rs 1,156 at around 9.40 am.

IDFC Securities termed Infosys valuations as reasonable. It has retained a positive view on Infosys as it believes that execution-focussed leadership should drive convergence of growth with the industry. It also finds valuations inexpensive as it maintained ‘Outperform’ on Infosys.

Kotak Institutional Equities has ‘Add’ rating on Infosys. According to the brokerage, Infy's revenue growth guidance of 6-8 per cent signals acceleration in growth.

"Strategic priorities have caused Infosys to cut margin guidance band, which is disappointing, but necessary to build muscles in digital business. Because of the margin reset, the brokerage has cut FY19-FY20 earnings estimates by 1.1-1.4 per cent," it added.

However, it remains positive on Infosys as key revenue metrics are "comforting". Kotak also said Infosys valuations at 14.7 times FY20 estimated earnings are attractive.

Infy's revenue from operations came in at Rs 18,083 crore for January-March as against Rs 17,794 crore in the December quarter. TCS reported 3.78 per cent rise in net profit at Rs 32,075 in Q4 FY18 over Rs 30,904 crore in the December quarter.
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