Infosys | TCS | Wipro: Which IT stock was the best share in the third quarter?

New Delhi: Among the three major IT stocks that reported December quarter results on Wednesday, Infosys’ numbers were better than expected from TCS whose earnings were accompanied by a margin loss. Wipro failed to impress the street with weaker-than-expected revenue growth, even when it was within its target range. Infosys is analysts’ top pick for third-quarter results, followed by TCS. Experts are largely underweight in Wipro’s results after the third trimester.

Since Infosys outperformed TCS, we don’t expect any difference in valuation between the two companies. Based on our revised estimates, the stock is currently trading at 28 times in fiscal year 23 EPS. “We value the stock 30 times in fiscal year 24 EPS, which means the target price is Rs 2,310,” Motilal Oswal Securities said.

Nirmal Bang said there were no material changes to TCS and Wipro’s FY23 or FY24 EPS estimates after their third-quarter results, but that it revised Infosys’ EPS estimate of 5 percent in its FY24 estimate due to significant quarterly strikes.

“The rise in the share prices of TCS and Wipro (along with the target price cut of the latter) has lowered the ratings for both ‘buy’ to ‘accumulation.’ Our target prices for TCS, Infosys and Wipro are Rs 4,169 and Wipro, said Nirmal Bang. 2,046 rupees and 776 rupees, respectively.

Institutional equity firm HDFC said Infosys is its top pick in Tier 1 IT with more than 17 percent EPS CAGR and more than 40 percent RoIC, valuing the company at Rs 2,220, based on 30 times from March 2 to 24. . Its target price for Wipro remains at Rs 740 based on 24 times March 2024 EPS, a 20 per cent discount for Infosys.

“Wipro delivered a muted performance in the third quarter; CC’s 3 percent q/q growth was below expectations and the lowest in the past five quarters. 2% q/q organic growth was the lowest among the top 3 IT companies .

However, analysts noted that comments from the three departments indicate a continuing strong demand environment and Accenture’s consensus.

Edelweiss said Infosys has in the recent past lost market share to peers such as TCS and HCL Technologies due to a lack of a strong presence in infrastructure management services and emerging geographies, aversion to discount rates and flexibility in contract structuring.

The restructuring exercise also caused turbulence, which contributed to slower growth than his peers.

However, given the investments made, the gap in revenue growth versus peers will narrow in our view. Besides, margins are likely to expand given the currently low usage, potential for rapid offshore execution, and greater contribution from non-linear business.

Infosys grew 7 percent in dollar terms from the previous quarter and 4.5 percent in TCS — both of which beat analyst estimates. Wipro grew 3 percent, slightly below street expectations. Infosys’ profit increased by 12% to Rs 5,197 crore against a 12.2% increase in TCS’s profit of Rs 9,763 crore. Wipro’s growth was flat at Rs 2,970 crore.

Infosys has upgraded its revenue guidance to 19.5-20 percent for fiscal year 22. Earlier, it had estimated growth of 16.5-17.5 percent in constant currency terms. Wipro said it expects revenue from its IT services business to range between $2,692 million and $2,745 million. This translates to sequential growth of 2 percent to 4 percent. Meanwhile, the board of TCS has approved the buy-back of up to 4 crore shares for a total amount not to exceed Rs 18,000 crore, the company said in a regulatory filing.

ICICI Securities said frenzied, sky-high life valuations for many stocks do more than capture near-term strength or predictability in earnings.

It said TCS is now trading at 33 times, up 67 per cent over the pre-Covid long-term average which is the one-year forward earnings multiple.

“However, given the recent repurchase announcement and beating out Q3 FY22, we expect the momentum to continue in the near term. Although Infosys has fallen significantly (now at 32 times versus the historical average of 17 times), we believe That this is more sustainable given the growth leadership position that the company has reclaimed and relatively more durable demand.Moreover, Wipro is now trading at 28 times versus the pre-Covid long-term average of 15 times. The brokerage said, “We remain cautious as we see The current complications are at risk as disappointments in the company’s performance persist.”

ICICI Securities said Infosys remained its top purchaser.



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