In an interview to CNBC-TV18, Basu Banerjee, IT Analyst at Quant Capital spoke about Q3 earnings season for the Indian IT sector.
Below is a verbatim transcript of the interview
Q: Q3 is turning out to be a bit of a surprise on the upside?
A: Yes, definitely. You can see the whole industry is going through this transformation period where developed markets are growing much better than what the analyst community was expecting some 12 months back. You can see Europe has been the good growth area for both Infosys and HCL Tech. For Wipro, Europe being a stronghold people will expect that to be the positive surprise going ahead tomorrow.
But overall discretionary and regular traditional horizontal demand has been growing across developed markets. That is why all the players have been benefiting and positively surprising in a quarter full of furloughs.
Q: What is your call on the HCL Tech's share? It has doubled almost in last one year. It still trades fairly attractive compared to other peers at about 18 times.
A: Broadly, we will be valuing HCL Tech around 14 times FY15 earnings and on that level it ideally should reach levels of around Rs 1,500. Remember, this is a June year ending entity. So, earlier we started valuing HCL Tech some 12 times forward earnings and if you look at the fantastic margin execution, delivery, dollar revenue growth— (it is) one of the industry leading numbers. Definitely it has been catching up to the peer set and if you see Tata Consultancy Services (TCS) and Infosys trading around 18-19 times, HCL Tech can easily touch Rs 1,500 even at 14 times.
So the element of rerating for HCL Tech has been going on and is continuing on the back of robust set of numbers and you can see the positive confidence for the numbers going ahead.
Q: What are you expecting for Tata Consultancy Services (TCS) and Wipro both in terms of earnings as well as stock price performance?
A: The dollar revenue quarter-on-quarter growth of 3 percent for both the entities. For HCL, we are expecting a quarter-on-quarter margin decline of around 100 bps. For Wipro, a margin improvement of 50 bps. At bottom-line level in rupee terms for Wipro, we are expecting around Rs 2,100 crore and for TCS around Rs 5,100 crore.
Remember, last quarter TCS had a Rs 370 crore forex loss which is expected to see a huge swing to somewhere around Rs 150-200 crore forex gain, so that will also aid the bottom-line and the kind of positive surprise the industry is showing, probability of both the entities surpassing 3 percent is there, especially TCS.
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