TCS, Infosys or Wipro? Experts explain the stock to 'BUY'

All three IT-majors, namely Tata Consultancy Services (TCS), Infosys and Wipro, have presented their June 2019 (Q1FY20) quarterly results. During the quarter, TCS registered an 11% growth, while Infosys saw single-digit rise of 5.2% followed by Wipro posting 13% jump in its consolidated net profit. Post Q1FY20 result announcements, shares of these three companies have been trading on a volatile note. On Friday, TCS share price closed at Rs 2,076.95 per piece up by 0.55% on Sensex. On the other hand, Wipro share price tumbled by 1.63%, ending at Rs 264.75 per piece, whereas Infosys stock price plunged by nearly 1% finishing at Rs 785.60 per piece. Post quarterly result, it becomes very important to invest wisely in stocks in order to add gains in once portfolio. 

If you are planning to invest in TCS, Infosys and Wipro shares, then here’s what experts say about these stocks.

On Wipro, Aniket Pande and Rajat Gandhi, analysts at Prabhudas Lilladher said, “We believe that Wipro is struggling to achieve any degree of consistency. The timing of the recovery remains key & revenue growth of Wipro is never broad-based. The company's revenue growth has been below 1% (Q/Q CC) in 8 of the past thirteen quarters, suggesting that growth momentum is difficult to predict. We expect 4.5% & 7.3% USD revenue & EPS CAGR for FY19E-FY21E respectively & value Wipro at 14.5x Mar-21 earnings to arrive an changed target price of Rs.238. Maintain Reduce. Stock is currently trading at 17.6x FY20E EPS and 15.9x FY21E EPS.”

Similarly, Kawaljeet Saluja  and Sathishkumar S, analysts at Kotak Institutional Equities for Wipro said, “Wipro’s weak start to the year will lead to another year of mid-single digit growth. Financial services, the principal growth driver, may hit an air pocket. Rest of the verticals have not displayed enough muscle to paper over the gap that financial services can potentially create. Net result is a high chance that FY2020E growth could be similar or lower than FY2019 growth. We cut revenue growth estimates and retain our cautious view. Fair value is cut to Rs260 (from Rs270 earlier).”

As for Infosys, Sandeep Shah analyst at CGS CIMB said, “We cut FY20F-22F EPS by 3% largely due to change in currency assumptions. We keep our Add call with a higher TP, now based on 18.5x 1-year forward P/E at 5-10% premium over its 5-year average (earlier 18x) given its improving US$ sales growth, margin management, large deal wins and increasing ROE. Healthy sales/margin performance in the coming quarters is a potential re-rating catalyst.”

While Harit Shah, Research Analyst at Reliance Securities has given a ‘Hold’ call on Infosys shares. Shah said, “The IT major expects margin improvement in the near-term as it hopes to see operating leverage on healthy revenue growth, with major investments now behind. Nonetheless, attrition remains a concern and at 23.4% is > 2x TCS’ level. We had already factored in double digit growth and thus, our revenue estimates are little changed post guidance upgrade. Near term challenges in the key financial services vertical are a concern. We await clear signs of operating leverage in the form of improving margins. The stock currently trades at 16.8x FY21E EPS. We retain our HOLD rating on Infosys with a slightly revised TP of Rs 790 on marginal earnings upgrades.”

In case of TCS, Vibhor Singhal and Shyamal Dhruve, Research Analyst at Phillip Capital said, “TCS reported moderate set of numbers this quarter, with revenue growth below estimates and margins inline. Its digital business (32% of revenue), now at whopping ~$6.5bn continued to report strong growth of 42% yoy. While the company reported double-digit CC yoy revenue growth, the single-digit revenue growth in BFSI was the minor blip in this quarter – which had rebounded with a strong growth in the last quarter. Europe continued to dominate, with +15% yoy growth – thirteenth consecutive quarter of double-digit growth. All these, place the company on a strong pedestal to be the fastest growing large-cap, despite it having the largest base.”

The duo at Phillip also said, “While valuations (at 21x FY21 PE) might appear expensive – we view TCS belonging to the category of stocks like HUL and HDFC Bank – market leaders in their respective domains, who command a significant premium over peers, by virtue of their market-leading positions. TCS’ stock, while expensive, will keep getting more expensive as it continues to defy gravity. Maintain BUY.” A target price of Rs 2,300 has been set on TCS. 

Apurva Prasad, Amit Chandra and Akshay Ramnani analysts at HDFC Securities said, “TCS’ growth, scale and durability are its key strengths. Growth in digital, momentum in deal wins and strong hiring trend are positive demand indicators. TCS’ offshore leverage in digital (location independent Agile framework), outperformance in BFSI (vs. Accenture) and superior execution (margin/attrition differential) stand out. We expect 10/9% rev/EPS CAGR over FY19-22E. Strong FCF generation (90% FCF/PAT), payout policy (80- 100% of FCF) and >4% FCF yield will support valuations.” 
Adding further, the HDFC Securities analysts said, “We maintain BUY on TCS following a miss on revenue and an inline margin performance. Our TP is Rs 2,420 at 24x Jun-21E EPS, with ~2% cut in earnings estimates.”