“As Infosys has been outperforming TCS, we expect no valuation divergence between the two companies. Based on our revised estimates, the stock is currently trading at 28 times FY23 EPS. We value the stock at 30 times FY24 EPS, implying a target price of Rs 2,310,” said Motilal Oswal Securities.
Nirmal Bang said there were no material changes in FY23 or FY24 EPS estimates for TCS and Wipro post the third quarter results but it did revise EPS estimate for Infosys by 5 per cent in FY24 estimate due to the substantial quarterly beat.
“The run-up in the stock prices for TCS and Wipro (along with a target price reduction for the latter) has led us to cut ratings on both from ‘Buy’ to ‘Accumulate’. Our target prices for TCS, Infosys and Wipro are Rs 4,169, Rs 2,046 and Rs 7,76 respectively,” Nirmal Bang said.
HDFC Institutional Equities said Infosys is its top pick in tier-1 IT with over 17 per cent EPS CAGR and over 40 per cent RoIC, valuing the company at Rs 2,220, based on 30 times March 2o24 EPS. Its target price for Wipro stays at Rs 740 based on 24 times March 2024 EPS, a 20 per cent discount to Infosys.
“Wipro delivered a muted performance in Q3; growth of 3 per cent QoQ CC was below estimate and the lowest in the last five quarters. The organic growth at 2 per cent QoQ was the lowest among top 3 IT companies,” it said.
Commentary, nonetheless, from all three managements indicated a continuing strong demand environment and echoes the views of Accenture, analysts said.
Edelweiss said Infosys has in the recent past lost market share to peers such as TCS and HCL Technologies due to the lack of a strong presence in infrastructure management services and emerging geographies, and its aversion to discounted pricing and flexibility in structuring contracts.
The restructuring exercise too caused a disruption, contributing to slower growth than peers.
“That said, in light of the investments made, the gap in revenue growth vis-a-vis peers would narrow in our view. Besides, margins are likely to expand given currently low utilisation, possibility of expeditious offshore execution, and higher contribution from the non-linear business,” it said.
Infosys grew 7 per cent in dollar terms over the previous quarter and TCS 4.5 per cent—both beating analyst estimates. Wipro grew 3 per cent, a tad lower than street expectations. Profit for Infosys rose 12 per cent to Rs 5,197 crore against a 12.2 per cent rise in profit for TCS at Rs 9,763 crore. Wipro’s growth was flat at Rs 2,970 crore.
Infosys has upgraded its revenue guidance to 19.5-20 per cent for FY22. Earlier, it had estimated growth at 16.5-17.5 per cent in constant currency terms. Wipro said it expects revenue from its IT services business to be in the range of $2,692 million to $2,745 million. This translates to a sequential growth of 2 per cent to 4 per cent. Meanwhile, TCS board has approved buyback of up to 4 crore shares for an aggregate amount not exceeding Rs 18,000 crore, the company said in a regulatory filing.
ICICI Securities said that overheated and lifetime high valuations of many stocks more than capture the near-term strength or predictability in earnings.
TCS, it said, is now trading at 33 times, up 67 per cent over pre-Covid long-term average of 1-year forward P/E.
“However, due to the recent buyback announcement and beat in Q3FY22, we expect the momentum to continue in the near term. Even as Infosys too rerated significantly (now at 32 times vs historical average of 17 times), we believe this is more sustainable given the growth leadership position the company regained and relatively more durable demand. Further, Wipro is now trading at 28 times vs pre-Covid long-term average of 15 times. We remain cautious as we see current multiples to be at risk as disappointments on company performance continue,” the brokerage said.
ICICI Securities said Infosys remains its top buy.
