See good buying opportunity in TCS, HCL Tech: Phillip Cap

Sonia: Is this a good time to be accumulating some Tata Consultancy Services (TCS) and HCL Technologies or do you think you could get better levels?

A: I believe for both TCS and HCL Tech this is a good entry point that this market has provided. The stocks have definitely overreacted to the results that have come out especially in the case of TCS. We definitely believe that these are good buying opportunities for both the stocks and are recommending investors to start accumulating from current levels.

Ekta: If you look at it on FY16 PE basis HCL Tech is at 13 times odd, Infosys is at 16 times and TCS is at 20 times. Do you think that TCS would possibly correct to valuations of Infosys or maybe closer Infosys if not at an Infosys?

A: Not necessarily. I believe that TCS is the leader of the pack. At the end of the day even if by whatever number they have missed the revenue numbers for this quarter, they are still expected to grow around 18 percent dollar revenue growth for FY15. So, they are still the leader in the pack, the largest company, their growth is broad based, so they are definitely doing much better than all the other companies. So, that definitely warrants a premium in terms of multiple that they should be getting. I am not sure if TCS should correct to the lower levels that the other companies are, in fact on the contrary if other companies are able to catch-up, they might themselves get rerated towards higher number.

Sonia: What is your earnings per share (EPS) estimate for TCS now and what would your price target be with 12 month time horizon?

A: For FY15 our EPS is RS 111 and Rs 134 for FY16 and our 12 month price target stands at around Rs 2,950.

Ekta: Tech Mahindra and Wipro are still to release numbers from frontline IT. Since two out of three have disappointed, would your expectations be tonned down for the other two?

A: Not necessarily. I wouldn’t call TCS as strict disappointment per se and they have missed by USD 25-30 million for the quarterly revenues that on a base of USD 15 billion is 0.2-0.3 percent by which they have missed out on the revenue numbers, so not necessarily disappointed in terms of revenue growth. Yes, margins are something which both the companies have disappointed but that is because all the companies are right now looking to invest in sales and marketing – that is something which Infosys, HCL Tech and TCS have been repeatedly saying. So, for the two companies which are yet to report that is Wipro and Tech Mahindra, there might be some sort of realisticness coming in in terms of growth numbers but I do not think there would be any toning down of the optimism on those two numbers.

Tech Mahindra, we expect to do significantly in this quarter. Wipro has been struggling in terms of growth numbers for the past three-four quarters probably a couple of more quarters is something which remains for them. So, I do not think the current results would make us change our estimates at least for these quarters or henceforth the numbers for the remaining part of the year.