Angel expects TCS,HCL Tech to lead growth in tier-I IT pack

Angel Broking has come with its September ‘12 quarterly earning estimates for IT sector. According to the research firm expects 2QFY2013 to be better than 1QFY2013. However this year's (FY2013) 2Q is not expected to be as good as 2Q tends to be traditionally due to unstable macros and economic uncertainty across the developed economies. On account of this, clients are delaying their incremental budget flush. For 2QFY2013, we expect volume growth to be in the range of 2.0-4.0% qoq for tier-I IT companies, with TCS leading the pack.

We expect TCS and HCL Tech to lead the growth in the tier-I IT pack. TCS and HCL Tech's stock prices have run up significantly and are currently trading at 17.5x and 12.8x their respective FY2014E EPS, which leaves little room for upside in the stock prices. Hence, we recommend an Accumulate rating on TCS and HCL Tech. The PE premium between TCS and Infosys has widened a lot as Infosys is expected to post a much lower growth than TCS, and is trading at 14.6x FY2014E EPS. So we recommend an Accumulate rating on Infosys as well. In addition, we have a Buy rating on Wipro with a target price of  Rs 421. In the mid-cap space, we like Tech Mahindra, MindTree and KPIT Cummins.

Company	Net Sales (Rs Cr)		Net Profit (Rs Cr)
	2QFY13E	% chg	2QFY13E	% chg
TCS	15,542	4.50	3,372	2.80
Infosys	9,940	3.40	2,314	1.10
Wipro	10,990	3.20	1,446	-8.50
HCL Tech*	6,153	3.90	786	-8.00
Tech Mahindra	1,615	4.60	308	-8.90
Mah Satyam	1,929	2.60	273	-22.50
Mphasis^	1,412	4.20	211	1.10
Hexaware#	515	2.90	86	-3.10
Mindtree	587	4.20	72	-18.60
Persistent	305	1.50	40	-5.00
KPITCummins	554	2.90	50	2.60
Infotech Ent.	479	4.90	69	3.20