TCS, Infosys or Mindtree: Which promises better returns post Q4 results

Infosys has outpaced industry leader TCS in all the four quarters in FY16, as far as revenue growth is concerned, signalling a turnaround in the company’s fortunes.

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Domestic IT companies such as Infosys, Tata Consultancy Services (TCS) and Mindtree have announced their financial results for the quarter ended March 2016. Infosys has outpaced industry leader TCS in all the four quarters in FY16, as far as revenue growth is concerned, signalling a turnaround in the company’s fortunes.

Mindtree on Monday reported a 21.2 per cent growth in consolidated net profit at Rs 156 crore for the quarter ended March 31. The firm had posted a net profit of Rs 128.7 crore in the year-ago period.

Here is what market experts are thinking about further share price movement after their earning figures:

Tata Consultancy Services (TCS)

The nation’s largest IT exporter TCS on Monday reported a higher-than-expected 72.7 per cent growth in the March quarter net profit at Rs 6,413 crore and guided towards a stronger 2016-17 fiscal, saying a majority of its worries are behind now.

The biggest Tata Group company had posted a post-tax profit of Rs 3,713 crore in the year-ago period, pulled down by a Rs 2,628-crore employee bonus during the period.

According to Religare Institutional Research, Overall, Q4FY16 was a soft quarter for TCS with a miss on margins. Besides, the quarter points to a continued decline in realisations, likely due to a mix shift or pricing pressure in traditional services. The brokerage house thinks valuations at 17.5x FY18E are full due to limited levers for earnings upgrades amid moderating growth and premium margins. Religare has maintained ‘Sell’ on TCS shares with a March 2017 target price of Rs 2,300

However, Reliance Securities in a research report said, “We expect TCS’ $ revenue and EPS to grow at 12 per cent and 8 per cent CAGR over FY16-18E factoring EBIT per cent at 25.8 per cent and 25.6 per cent for FY17E and FY18E and maintain ‘Buy’ on TCS with Target Price of Rs 2,730.”

Infosys

Infosys on Friday beat estimates and announced 3.81 per cent quarter-on-quarter (qoq) rise in its consolidated net profit figures at Rs 3,597 crore for the quarter ended March 2016. The company registered net profit of Rs 3,465 crore in the sequential quarter ended December 2015 and Rs 3,097 crore in the same quarter last year.

According to Sharekhan, the growth acceleration in the recent quarter and strong revenue visibility led by improvement in wins rate, the growth revival strategy is working well under the leadership of Vishal Sikka. The market-share gain with some pricing discipline coupled with improvement in wins rate and strong deals pipeline provide confidence on demand visibility. Further, automation, renew execution delivery and operating levers (offshore shift, utilisation and lower sub-contractors expenses) will take care of margins trajectory. At the current levels, the stock trades at 18.4x and 16.5x its FY2017E and FY2018E estimates, respectively. Sharekhan has maintained ‘Buy’ rating on Infosys shares with an unchanged price target of Rs 1,430.

JM Financial expects the reaffirming growth guidance should keep investors engaged in the stock. The brokerage house is bullish on Infosys and believe shares can touch Rs 1,340.

Mindtree

According to Prabhudas Lilladher (PL), Mindtree reported EBITDA margins of 17.1 per cent in Q4FY16, lowest level after FY12. Margins have been impacted by investment in digital business and also the impact of acquisitions. These headwinds will persist in FY17 as well and the brokerage house sees downside risk to company margins. It has a ‘Accumulate’ rating on Mindtree stocks with target price of Rs 790.

Post Mindtree results, Reliance Securities said, “We revised our earnings estimate higher by 5 per cent and 4 per cent for FY17E and FY18E, respectively and expect $ revenue and EPS of the company to grow at 19 per cent and 20 per cent CAGR over FY16-18E.” The brokerage house maintained ‘Buy’ on Mindtree with target price of Rs 825.”

Another IT company Wipro is expected to announce its fourth quarter results later in the day on Wednesday.

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