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Last Updated : Apr 11, 2019 10:23 AM IST | Source: Moneycontrol.com

'IT majors to post strong revenue growth, but margins may falter'

IT companies are expected to post strong revenue growth in the seasonally-weak fourth quarter, said Sidharth Sedani of Anand Rathi

Moneycontrol Contributor @moneycontrolcom
 
 
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Siddharth Sedani

The RBI on April 4 lowered the benchmark interest rate by 0.25 percent, the second cut in a row, to the lowest level in one year. The central bank, however, kept monetary policy stance 'neutral' due to uncertainty over monsoon.

Oil prices registered their strongest quarter in almost a decade as the OPEC restrains supplies. The latest flash-points in the Middle East and Venezuela are giving the rally renewed impetus.

The prospect of a resolution to the US-China trade war and slivers of optimism over the global economy have also buoyed the demand outlook in recent days. Also, gold prices weakened on expectations of positive outcomes of the China-US trade deal.

In the coming days, we will be looking at results of India’s major IT companies namely Infosys, TCS, Wipro, and Tech Mahindra. These companies are expected to post strong revenue growth in the seasonally-weak fourth quarter on the back of large deal wins, but margins could come under pressure as the cost of expanding headcount in the US begins to bite.

Here are the top stock trading ideas that can give good returns:

Larsen & Toubro Infotech: Buy | Target: Rs 2,100

L&T Infotech is a global technology consulting and digital solutions company having its operations in 27 countries. In FY19, it will complete two years of significant market-share gains, reflecting its competitiveness in the marketplace. Operations in North America (67 percent of revenue) are growing fast along with Europe at 17 percent and 10 percent, respectively.

Revenue per client is increasing gradually, partly reflecting higher-value deals and partly penetration into larger accounts.

The stock now quotes at 16x FY21e PE (11x EV/EBITDA), which we consider attractive given the growth profile. Our fair price is based on 20x FY21e PE (15x EV/EBITDA).

ICICI Lombard General Insurance Company: Buy | Target: Rs 1,210

ICICI Lombard General Insurance Company is the fourth largest non-life insurance company and the largest private player in the industry.

With focus on SME insurance market and cross-selling opportunities, it looks to drive growth on the back of several initiatives - expanding distribution network, enhancing product offering and bolstering technology to improve overall operational efficiency and customer service.

The company issued 23.5 million policies in FY18 and its gross direct premium income (GDPI) increased 15.2 percent year over year to Rs 123.57 billion.

Given its impressive underwriting performance, diversified product mix and favourable macro traits, we believe the company is well positioned for long term growth and initiate our coverage on ICICI Lombard General Insurance Company Ltd, with a BUY rating and a target price of Rs 1,210 per share.

Maruti Suzuki: Buy | Target: Rs 8,482

Maruti Suzuki's strong product portfolio and distribution network make it best placed to capture pent-up demand in the passenger vehicle segment.

It has come a long way to become the most trusted brand name in the Indian passenger vehicle industry, commanding about 50 percent market share.

Further, Maruti's wide range of product portfolio coupled with volume growth should help in sustaining the leading position in the market. At CMP the stock is trading at 28.1x times FY19E and 23.3x FY-20E consolidated earnings.

The author is Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
First Published on Apr 11, 2019 10:23 am
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