See Infosys-TCS valuation gap narrowing: IDFC

Despite Infosys changing its revenue guidance to 9-10 percent, from 6-10 percent, Hitesh Shah, IT Analyst, IDFC Securities feels it is still very conservative. With rupee staying where it is, it should be able to do closer to Rs 190 on recurring earnings per share (EPS) for full year, he adds.

Also Read: Infosys Q2 net up 1.4%, ups FY14 guidance to 9-10%
He told CNBC-TV18, the Infosys valuation discount to that of Tata Consultancy Services (TCS) should narrow down from here. The discount to TCS was closer to 33-35 percent and it has already narrowed to 20-25 percent, he says. According to him, over the next 12 months this would narrow further to about 10 percent. Below is the verbatim transcript of Hitesh Shah's interview on CNBC-TV18 Q: Post these numbers how will you change your estimates on Infosys on the dollar revenue for FY14 and even on the EPS front?
A: What they have guided for this year is still very conservative - builds about 1 percent kind of a decline. In my view we would not see that kind of a revenue decline in the next two quarters. It should be more like 0-1 percent kind of growth, which would imply about 12 percent dollar revenue growth for the Infosys for full year and with rupee staying where it is, they should be able to do closer to Rs 190 on recurring earnings per share (EPS) for full year, somewhere between Rs 180-190. Q: Would you want to believe that given this performance of the Q2 the market will be willing to give them a little more in terms of valuation?
A: The Infosys valuation discount to that of Tata Consultancy Services (TCS) should narrow from here. What we have seen in CY12 was quite a few quarters of disappointment which is not what we are seeing this year and the discount to TCS which was closer to 33-35 percent has already narrowed closer to 20-25. In our view over the next 12 months this would narrow further to about 10 percent or so which is what would lead to relative rerating of Infosys vis-à-vis TCS. Q: As of now it’s 5 percent reactions on the stock price. Just in the near term where do you expect the stock headed reacting to these numbers? Where will it settle?
A: I believe whatever reaction that has happened, the stock should settle closer to these levels. However, as we proceed for the next two quarters and we see next set of good news from Infosys is when we would see another set of moves for Infosys from that perspective.
We have to keep in mind NRN’s (Narayana Murthy) philosophy which always has been there and which he had reiterated in the last quarter as well that bad news would come to shareholders through elevator while good news will have to take a staircase which is what I believe that good news would come with a Q3 and Q4 result and that is when we would see the next upmove for Infosys.