Antique's view on IT sector post Q2 earnings

Pratish Krishnan of Antique Broking prefers TCS over other frontline IT companies after the recent set of Q2 numbers. However, he expects Infosys to catch up on revenue momentum going ahead.

On HCL Tech, he said, "We would rather wait for couple of more quarters for the margins to stabilize but our preference would be TCS at this point of time."

Also Read: TCS sees environment being positive for renewals, deal wins

His top pick from the midcap is Hexaware Technologies.

Below is the verbatim transcript of the interview

Q: How much you think TCS is good from this price level given numbers and given where its valuations are?

A: Clearly, the numbers are pretty strong. They have yet again beaten the expectations of the street. My sense is that at least 10-11 percent upside from current level should be possible, though the valuations are slightly higher. I do see a case for earnings upside going forward from FY14 point of view.

Q: What kind of EPS predictions do you have for FY14 for TCS?

A: We have an EPS target of around Rs 79 for FY14. This is post the Q2 results which came.

Q: If you had to chose between TCS and HCL Tech, the top two right now on current reckoning, which one would be plum for?

A: Our preference has been TCS. It is mainly because the margin profile of the company is quite better. I do agree on the terms of revenue growth for HCL but from margin point of view we are not that too comfortable. We would rather wait for couple of more quarters for the margins to stabilize. But our preference would be TCS at this point of time.

Q: What do you expect to hear from Wipro? It is the only company which has not reported its numbers yet?

A: The dollar revenue growth should be inline with the guidance. We are looking at 1.7 percent growth in sequential dollar terms. But somewhere, the deal closure has been pretty strong but somewhere the deal closure probably has been pretty strong for Wipro. So, I won’t be surprised if they come out with a slightly better guidance in terms of next quarter as compared to the Q2.

Q: For how many more quarters do you expect to see the trend that TCS and HCL Tech deliver industry leading volumes and Wipro and Infosys continue to lag?

A: For both the companies, the topline is pretty strong. Even deal flows have been strong. So, my sense is another that for few quarters, the revenue growth momentum should be pretty strong for these companies. But somewhere in terms of Infosys, we think probably it’s bottomed out.

We do think that fiscal 2014 should be a better year as compared to this year from a topline which is why we do have – around 14 percent dollar revenue growth for Infosys. I think Infosys will also catch up in terms of revenue momentum going forward.

Q: What are your top midcap bets in IT right now?

A: Amongst midcap, Hexaware has been our top pick. We have an upside potential of more than 40 percent on the stock. So, the earnings momentum is strong. We are looking at over 20 percent earning growth for Hexaware which should be the best in class in terms of industry point of view. So, that remains the only midcap that we like.