INSUBCONTINENT EXCLUSIVE:
Dalal Street analysts turned remain bullish on the country’s IT majors Tata Consultancy Services (TCS) and Infosys after they gave March
quarter earnings season a smart start on Friday
While Infosys reported a 10.5 per cent year-on-year (YoY) increase in consolidated net profit at Rs 4,078 crore and guided for 7.5-9.5 per
cent revenue growth in FY 2019-20, TCS posted 17.7 per cent growth in March quarter profit at Rs 8,162 crore.
Infosys witnessed 19.1 per
cent rise in revenues at Rs 21,539 crore in March quarter from Rs 18,083 crore in the year-ago period
TCS’ net sales climbed 18.5 per cent to Rs 38,010 crore from Rs 32,075 crore in the year-ago quarter
Sharekhan said TCS’ earnings performance for Q4 looked relatively better as Infosys disappointed on the margins front
“We have tweaked our earnings estimates for FY2020 and FY2021 for Infosys, factoring in lower-than-expected margin guidance for FY2020
and a change in USD/INR rate
With robust total contract value (TCV) signings and improving business visibility, we believe Infosys would gradually catch up on revenue
growth with TCS in FY2020 and in turn would narrow the valuation gap with TCS going forward,” the brokerage said.
The brokerage firm,
however, maintained ‘buy’ call on Infosys and TCS with a price target (PT) of Rs 840 and Rs 2,400, respectively.
Both companies
announced their financial result on the same day for the first time ever
Where TCS announced a final dividend of Rs 18 a share, Infosys said it will pay a final dividend of Rs 10.5 per share.
The duo showed
sustained momentum in earnings from digital solutions
TCS and Infosys earned 31 per cent and 33.8 per cent revenue from such services in March 2019 quarter.
In the corresponding quarter of the
previous financial year, each had earned over one-fourth revenue from the digital platform
The rising share of these services is encouraging since it makes the offerings of Indian IT vendors relevant to clients’ demands
The Infosys management has cut its EBIT margin guidance for FY2020 to 21-23 per cent from 22.8 per cent during FY19 from an earlier
guidance of 22-24 per cent for FY2019.
The negative surprise on margin guidance is due to continued investments for future growth which
includes enhancing digital competencies, large deal capabilities and localisation
However, the management said aggressive investments on sales revitalization are completed and the pace of investments will be less
The TCS management has alluded at continuing of growth momentum in FY2020E, despite witnessing macro challenges in the environment
On the margin front, management has maintained the aspirational margin band of 26-28 per cent, despite visa challenges.
“TCS posted
in-line revenue and margin performance, marked by strong deal wins,” said HDFC Securities
The brokerage is bullish on TCS with a target price of Rs 2,385
Mohit Jain, Research Analyst-Technology Media-Institutional Equity, Anand Rathi Shares Stock Brokers, said EBIT growth (17 per cent YoY)
of TCS is broadly in line with rupee revenue growth (19 per cent) YoY which basically means no margin expansion despite currency
depreciation of around 9 per cent.
“This could potentially be on account of increasing competitive intensity in the business
Revenue per employee remained largely stable (up 1 per cent YoY in dollar terms) during this period
However, valuations of the company look rich with the stock up 28 per cent in the last 12 months,” it said.
TCS shares settled 0.26 per
cent down at Rs 2013.75 on Friday, while Infosys closed 0.63 per cent up at Rs 747.85.
Independent market expert Sandip Sabharwal in a tweet
said, “Infosys went into the results season at an all-time high
It reported disappointing numbers and gave poor guidance
However, TCS went into the results 15 per cent off the all-time highs
Reported good numbers and indicate good tidings ahead
Preference should be clear.”
TCS scaled its life-time high of Rs 2,273 on October 1, 2018, while Infosys hit its record high of Rs 773.70
