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Jul 12, 2011, 02.32 PM IST | Source: CNBC-TV18

Q1 results: TCS to outperform Infy, says Nirmal Bang

Harit Shah, Senior Research Analyst, Nirmal Bang Institutional Equities is disappointed with the guidance given by Infosys for the second quarter of FY12. "They guided for around 4.3% sequential top line growth in rupee terms and we were expecting around 5.5-6%."

Harit Shah, Senior Research Analyst, Nirmal Bang Institutional Equities

Harit Shah, Senior Research Analyst, Nirmal Bang Institutional Equities gave his reading and outlook for Infosys in the wake of the Q1 numbers announced by the IT giant today.

He said, "The more disappointing aspect was the fact that they gave a very disappointing guidance for second quarter of FY12. They guided for around 4.3% sequential top line growth in rupee terms and we were expecting around 5.5-6% guidance."

Nirmal Bang has target price of Rs 2,900 on the stock.

Don't miss: Infosys net down 5.4%; sees 2.5% fall in FY12 margins

However, he expects TCS to continue to outperform Infosys as far as its results are concerned. "Our current target is Rs 1,225 on TCS so that is about 7-8% upside. Currently, we would not really be positive about either Infosys or TCS from the stock point of view."

Below is the verbatim transcipt of Shah's interview with Latha Venkatesh and Anuj Singhal of CNBC-TV18. Also watch the accompanying video.

Q: What would you do with the Infosys numbers? Quite clearly not anything to be very excited about, maybe a little bit of minor disappointment for those who expected the company to beat its estimates more handsomely. What are your thoughts now? What is your price target on Infosys?

A: The results were not anything special as you rightly said. I would say that more than the results, the more disappointing aspect of this was the fact that they gave a very disappointing guidance for second quarter of FY12. They guided for around 4.3% sequential top line growth in rupee terms.

We were expecting around 5.5-6% guidance. Typically, Q2 tends to be a seasonally strong quarter. If you look at the EPS - they have guided for a flattish kind of an EPS growth so, this is the biggest disappointment that we would takeaway from these numbers.

Going forward also even though the stock has lost about 5% of its value today we believe that there needs to be a very clear trigger for the stock to actually move higher up.

I think that the second quarter they need a very strong beat on Q2 numbers - only then you will see the stock price starting to move up little more significantly.

We currently have a target of about Rs 2,900 on the stock. We are still in the process of reworking our numbers for FY12 and FY13. We will be taking a call on revising the target price after the conference call. But as of now we have a Rs 2900 target on the stock.

Q: You have been having a negative view on Infosys of course for some time but going forward what about the Infosys versus TCS trade because clearly over last one year TCS has taken a big lead in terms of market cap also. Now it is almost 40-50% higher than Infosys. What should be the advice going forward in this Infosys versus TCS trade?

A: TCS is going to report its results on Thursday so we donít expect the kind of similar number what Infosys has reported. We expect the outperformance to continue.

They have been doing that for the last seven to eight quarters in a row now. So I think that TCS will continue to outperform Infosys as far as its results are concerned.

From the stock point of view - we currently have a hold rating on both stocks. Even for TCS we believe that while the company has performed very well over the last seven to eight quarters - it is by and large in the price. So our current target is Rs 1,225 on TCS so that is about 7-8% upside.

While you may say that TCS has done considerably better than Infosys over the last few quarters - I think that itís all in the price right now. Currently we would not really be positive about either Infosys or TCS from the stock point of view.

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