1. TCS hits new 52-week low, Infosys near closing valuation gap

TCS hits new 52-week low, Infosys near closing valuation gap

TCS is trading at 17.5 times FY17 P/E, a 10 per cent premium to Infosys. Experts see this this gap bridging over the next twelve months as it suffers from deceleration.

By: | Updated: January 13, 2016 5:07 PM

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TCS Q3 results: Software major shares fell as much as 1.67 per cent in the early trade.

Tata Consultancy Services (TCS) shares fell as much as 1.67 per cent in the early trade on Wednesday post muted Q3 numbers, while Infosys shares gained as much as 2.39 per cent. According to Eikon data, TCS trades at 17.3x of 1-yr forward earnings vs 16.4x of Infosys. Later, shares of TCS closed 1.88 per cent down at Rs 2280.30, while Infosys share price closed 3.08 per cent up at Rs 1082.35.

On Wednesday, TCS shares hit their new 52-week low of Rs 2,258.

Software major TCS on Tuesday reported a lower-than-expected 14.2 per cent growth in net profit at Rs 6,083 crore for October-December quarter and warned of a not-so-rewarding final numbers for the fiscal year. The Tata group company’s revenues rose by 11.7 per cent under the Indian GAAP system of accounting over the past year to Rs 27,364 crore. ALSO READ | TCS Q3 results –  Top 10 key takeaways

Analysts at a domestic brokerage Angel Broking said the numbers are “lower than expected” but retained its ‘buy’ call and added that it will be revising its target price on the country’s most valued stock.

TCS Q3 dollar revenue falls 0.3 per cent to $4.15 billion on quarter-on-quarter basis (qoq) mainly due to US holidays and heavy flooding in Chennai.

Japanese brokerage house Nomura believes TCS likely to underperform on revenue growth vs Infosys in FY16/17 after 5 years of outperformance.

According to Morgan Stanley, constant currency revenue growth for TCS was 12.5 per cent year-on-year in 9MF16 compared to 13 per cent at Infosys in H1F16. Growth rates seem to be converging which can alter multiple.

TCS is trading at 17.5 times FY17 P/E, a 10 per cent premium to Infosys. “We see this gap bridging over the next twelve months as it suffers from deceleration, ” said ICICI Securities.

After the Q3 results of TCS, Sharekhan in a research note said, “We continue to remain positive on TCS, given its strong positioning, scale advantage and headstart in the digital technology space. However, revenue growth de-acceleration has affected premium valuation of TCS (already seeing de-rating; trades at 17x and 15x based on its FY2017E and FY2018E earnings respectively), which we believe is attractive for an investment horizon of 12 months. We have tweaked our earnings estimates attributed to revenue miss. We also have maintained our ‘Buy’ rating on the stock with a revised price target of Rs 2,750.”

Infosys will announce its Q3 results on Thursday (Jan 14).

(With inputs from Reuters)

Tags: InfosysTCS
  1. A
    Anand
    Jan 14, 2016 at 1:07 am
    Buy another 296 TCS
    Reply

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