Following the announcement of their results, information technology (IT) major TCS saw its shares gain 4.78% to ₹2,110.05, valuing the firm at ₹7,91,771 crore, while Infosys Technologies, closed down 2.83% at ₹726.65 in a firm Mumbai market on Monday.
Reliance Securities, while maintaining a buy recommendation on TCS with revised price target of ₹2,300 from ₹2,190 earlier, has downgraded its recommendation on Infosys to ‘hold’ from ‘buy’ with reduced price target of ₹780 from ₹840 earlier.
Double-digit growth
“We expect the IT major [TCS] to comfortably post double-digit revenue growth in FY20E (greater than 11%). We are encouraged with margin management in a challenging environment.
“High payouts to shareholders in the form of buy-backs, along with good visibility will ensure the stock remains at elevated valuations,” said Reliance Securities in a research note.
On Infosys, the note said, “FY20(E) margin will hit its lowest-ever level, and is likely to be about 400 basis points (bps) below the 5-years-ago level and more than 800 bps lower than 10-years-ago level. While we have consistently maintained our view of ‘good revenue growth but at a cost’, lower-than-expected outlook comes as a negative surprise. Persistently higher attrition rate could also eat away profitability on higher employee retention cost.
“The stock is up 27% over the past year, and margin challenges are likely to lead to earnings per share CAGR of <10% over FY19-FY21E.”
Paras Bothra, president equities at Ashika Stock Broking has recommended TCS over Infosys to his clients due to “better visibility of topline and bottomline and the ability to maintain margins in a challenging environment.”
Emkay Global also said Infosys results were below expectations and it maintained its ‘sell’ rating on the stock. “Results are below expectations and the outlook is disappointing on consensus numbers. Weak exit margins and guidance would imply EPS cut across street for FY20/21 estimates. We maintain our ‘sell’ view on the stock,” said Emkay Global in a research note.
