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How do TCS, Infosys, Wipro stack up post-Q4, here’s what brokerages have to say

Year on year, Infosys revenue growth outpaced that of TCS and the operating profit margin gap between the two companies also narrowed.

April 16, 2021 / 03:49 PM IST
Indian top IT companies TCS, Infosys, and Wipro have had announced their fourth quarter FY21 results. Moneycontrol analysis these three companies' quarter numbers and comes across interesting trends, one year on year basis Infosys revenue growth outpacing TCS over the past 12 months and profit margin gap narrowing with TCS but on a quarterly basis, TCS continue to maintain higher revenue growth compared to its peers. The research firms seem a bit bullish on these stocks as mostly have recommended buy ratings for these stocks. In terms of stock price performance, all three stocks gained anywhere between 86 percent and 131 percent in the last one year. (Data Source: ACE Equity).
Indian top IT companies TCS, Infosys and Wipro have come out with their fourth-quarter FY21 results. Moneycontrol analysed the numbers and saw some interesting trends. Year-on-year, Infosys revenue growth outpaced that of TCS and it also narrowed the margin gap with its bigger rival. On a quarterly basis, however, TCS continues to maintain higher revenue growth compared to its peers. Research firms are bullish on these stocks, with most recommending a "buy". In terms of price performance, the three stocks have gained between 86 percent and 131 percent in the last year. (Data Source: ACE Equity).
When the coronavirus pandemic impacted all the businesses, Infosys seems exceptional in this period as its quarterly sales number consistently on an incline. The other two TCS and Wipro sale number impacted in June quarters but then after these two companies sales number was also on an incline.
While the coronavirus pandemic hit all businesses, Infosys is an exception. Its quarterly sales number during the period have risen consistently. TCS and Wipro saw a dip in the sale numbers in the June quarter but thereafter, they took saw an uptick.
On year on year basis, Infosys revenue growth outpacing TCS over the past 12 months, and the operating profit margin gap narrows in the last few quarters and hovering around TCS margin numbers. However, on a quarterly basis, TCS continues to maintain higher revenue growth compared to its peers.
Year on year, Infosys revenue growth outpaced TCS and the operating profit margin gap between the two companies narrowed in the last three quarters. However, on a quarterly basis, TCS continues to maintain a higher revenue growth compared to other two.
In terms of stock price performance, Wipro leading the pack with a gain of about 131 percent in the last one year while Infosys and TCS moved up 113 percent and 86 percent respectively. During the same period, BSE IT index gain 110 percent and the benchmark index Sensex was up 61 percent.
In terms of stock price performance, Wipro leads the pack, gaining about 131 percent in the last year. Infosys and TCS have moved up 113 percent and 86 percent, respectively. During the same period, the BSE IT index gained 110 percent and the Sensex 61 percent.
"Infosys reported a muted set of Q4FY21 numbers--revenue grew 2% (in cc), lower than our (4.1%) and Street’s (3%) estimates. FY22 revenue growth (12-14%) and margin (22-24%) guidance were lower than our expectations of 13-15% revenue growth and 23-24% margin. The company ended FY21 with 5% revenue growth, much higher than the 0-2% it had guided in Q1FY21; hence, we believe substantial conservatism is built into the outlook. The Rs 92 billion ex-tax buyback at a maximum price of Rs 1,750 per share was a surprise. FY21 large deal wins stood at an all-time high of USD 14.1 billion. We continue to remain confident of strong growth. Maintain ‘BUY’ with an unchanged target price of Rs 2,124 as we slightly trim estimates and rollover to Q2FY23E." according to Edelweiss research report. ICICI Direct research on Infosys, "An improved demand environment, traction in large deals, increase in outsourcing in the US and Europe, vendor consolidation opportunities, captive carve outs and cost takeout deals are expected to drive revenues in the long term. In addition, healthy traction in digital revenues, revenue growth outpacing TCS over the past 12 months and margin gap narrowing with TCS are other key positives. This, coupled with healthy cash conversion, robust capital allocation policy and EPS accretive buyback prompt us to be positive on the stock. Hence, we maintain our BUY rating on the stock with a revised target price of Rs 1,650 (26x P/E on FY23E EPS) (earlier target price Rs 1,610).
Brokerage firm Edelweiss said, "Infosys reported a muted set of Q4FY21 numbers—revenue grew 2% (in cc), lower than our (4.1%) and Street’s (3%) estimates. FY22 revenue growth (12-14%) and margin (22-24%) guidance were lower than our expectations of 13-15% revenue growth and 23-24% margin. The company ended FY21 with 5% revenue growth, much higher than the 0-2% it had guided in Q1FY21; hence, we believe substantial conservatism is built into the outlook." The Rs 92 billion ex-tax buyback at a maximum price of Rs 1,750 per share was a surprise. FY21 large deal wins stood at an all-time high of $14.1 billion, it said. "We continue to remain confident of strong growth. Maintain ‘BUY’ with an unchanged target price of Rs 2,124 as we slightly trim estimates and rollover to Q2FY23E, Edelweiss said in a research report.

ICICI Direct said an improved demand environment, traction in large deals, increase in outsourcing in the US and Europe, vendor consolidation opportunities, captive carve outs and cost takeout deals are expected to drive Infosys' revenues in the long term. "In addition, healthy traction in digital revenues, revenue growth outpacing TCS over the past 12 months and margin gap narrowing with TCS are other key positives," it said. "This, coupled with healthy cash conversion, robust capital allocation policy and EPS accretive buyback prompt us to be positive on the stock. Hence, we maintain our BUY rating on the stock with a revised target price of Rs 1,650 (26x P/E on FY23E EPS) (earlier target price Rs 1,610)."
TCS delivered yet another robust performance--Q4FY21 revenue grew 5.0% QoQ (in USD) and 4.2% (in cc), slightly above Street’s expectation of 4.8% and 4.1%, respectively. Margin at 26.8% was higher than Street’s 26.6% estimate. Revenue growth and margin were slightly below our estimates, which were highest on the Street. The company has also declared a dividend of INR15/share. Q4FY21 order book was at USD 9.2 bn--highest ever. LTM IT services attrition level was at the lowest ever of 7.2%. It added 19,388 employees during the quarter--highest ever. We continue to remain confident of strong growth trajectory for the next few years. Maintain ‘BUY’ with unchanged TP of Rs 4,176 as we roll forward to Q2FY23E."according to Edelweiss research report. "TCS’s Q4FY21 revenue growth of 4.2% QoQ CC was broadly in line with our optimistic estimates in a seasonally weak quarter. Growth was broad-based across verticals and geographies. Adj. EBIT margin stood at 26.8%, up 20bps QoQ despite hiring. TCV was strong at US$ 9.2bn. We tweak FY22/FY23 EPS by –1%/–3%, raise our target P/E to 28x (vs. 27.4x) and roll over to a new Mar’22 TP of Rs 3,780 (vs. Rs 3,710). Being the industry leader, TCS will be a prime beneficiary of vendor consolidation during the current technology upcycle. Maintain BUY." according to BOBCAPS research report
Edelweiss said TCS delivered yet another robust performance. Q4FY21 revenue grew 5% QoQ (in USD) and 4.2% (in cc), slightly above Street’s expectation of 4.8% and 4.1%, respectively. Margin at 26.8% was higher than Street’s 26.6% estimate. Revenue growth and margin were slightly below its estimates, which were highest on the Street. The company has also declared a dividend of Rs 15 a share. Q4FY21 order book was at $9.2 billion, the highest ever. "LTM IT services attrition level was at the lowest ever of 7.2%. It added 19,388 employees during the quarter--highest ever. We continue to remain confident of strong growth trajectory for the next few years. Maintain ‘BUY’ with unchanged TP of Rs 4,176 as we roll forward to Q2FY23E,"it said.

TCS’s revenue growth of 4.2% QoQ CC was broadly in line with its estimates in a seasonally weak quarter, BOBCAPS said in a research report. Growth was broad-based across verticals and geographies. Adjusted EBIT margin stood at 26.8%, up 20bps QoQ despite hiring. TCV was strong at $ 9.2b billion. "We tweak FY22/FY23 EPS by –1%/–3%, raise our target P/E to 28x (vs. 27.4x) and rollover to a new Mar’22 TP of Rs 3,780 (vs. Rs 3,710). Being the industry leader, TCS will be a prime beneficiary of vendor consolidation during the current technology upcycle. Maintain Buy," BOBCAPS research report said.
"Wipro’s revenue, deal wins and guidance were ahead of consensus expectations. Management is focused on driving a turnaround and the success is visible in deal win activity and growth acceleration. Completion of organizational and leadership changes will bring focus back to the business. Deal win momentum will sustain and further accelerate in mid-term. Margin is trending at 6-year high and while there are near-term headwinds, return of growth will provide sufficient cushion. Expect ~13% USD revenue and ~11% EPS CAGR over FY21-23. Upgrade to BUY (vs ADD) with revised TP of Rs 520 (22x FY23E EPS) vs Rs 500 earlier." according Axis Capital research report. IDBI Capital report says, "Wipro's (WPRO) Q4FY21 IT service revenue growth of 3% QoQ in CC was in-line with our forecast. IT services EBIT margin of 21%, -65bps QoQ was a beat to our forecast. Consolidated EBIT margin of 20.5%, -75bps QoQ and EPS of Rs5.4, +3.6%/32% QoQ/YoY was also beat to our forecast. Q4FY21 saw another quarter of strong large deal TCV of US$1.4bn (including one deal with potential of US$1 bn) following US$1.2 bn in Q3. Further, along with smaller deals the total TCV of US$7.1 bn for H2FY21 saw a 33% YoY growth. Q1FY22 guidance of IT services revenue growth of +2% to +4% QoQ in CC is a beat to our expectation. We increase our FY22/23 revenue (US$) by 2.4%/2.9% and EPS by 6.5%/6.2%. We increase our TP to Rs 485 (vs. Rs 415 earlier), now based on 22x FY23E (20x earlier) and upgrade the stock to ACCUMULATE vs. REDUCE earlier."
Wipro’s revenue, deal wins and guidance were ahead of consensus expectations, Axix Capital said. Management is focused on driving a turnaround and the success is visible in deal win activity and growth acceleration. Completion of organizstional and leadership changes will bring focus back to the business, it said. Deal win momentum will sustain and further accelerate in the mid term. Margin is trending at a six-year high and while there are near-term headwinds, return of growth will provide sufficient cushion. "Expect ~13% USD revenue and ~11% EPS CAGR over FY21-23. Upgrade to BUY (vs ADD) with revised TP of Rs 520 (22x FY23E EPS) vs Rs 500 earlier," Axis Capital research report said.

IDBI Capital said Wipro's (WPRO) Q4FY21 IT service revenue growth of 3% QoQ in CC was in-line with its forecast. IT services EBIT margin of 21%, -65bps QoQ was a beat to its forecast. Consolidated EBIT margin of 20.5%, -75bps QoQ and EPS of Rs5.4, +3.6%/32% QoQ/YoY was also beat to its forecast. Q4FY21 saw another quarter of strong large deal TCV of $1.4 billion (including one deal with potential of 1 billion) following $1.2 billion in Q3. "Further, along with smaller deals the total TCV of US$7.1 bn for H2FY21 saw a 33% YoY growth. Q1FY22 guidance of IT services revenue growth of +2% to +4% QoQ in CC is a beat to our expectation. We increase our FY22/23 revenue (US$) by 2.4%/2.9% and EPS by 6.5%/6.2%. We increase our TP to Rs 485 (vs. Rs 415 earlier), now based on 22x FY23E (20x earlier) and upgrade the stock to accumulate vs reduce earlier," it said
Ritesh Presswala Research Analyst at Moneycontrol
first published: Apr 16, 2021 03:49 pm

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