6 2428 1 2 5 4 4 1 3 1 tcs 985818 1175016

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Unformatted text preview: 42.7 3% 6% 12% 13% 4% 7% 4% 7% HCL Tech 359,208 404,031 80,663 86,845 58,372 62,449 81.8 87.3 -4% -6% -9% -11% -9% -13% -9% -13% Tech Mahindra 216,049 252,645 43,185 49,026 32,977 38,567 154.3 180.5 3% 8% -5% -2% 6% 11% 16% 22% Source: Deutsche Bank estimates, Bloomberg Finance L.P Our target prices imply 17–28% potential upside Our three Buy-rated stocks have potential upside of between 17% (Wipro) and 31% (TCS). We continue to be convinced about TCS’s growth prospects and return potential. Given TCS’s diversified geographical and vertical exposure, we expect the company to benefit the most from any improvement in the IT spending key markets such as USA and Europe. Therefore we expect the company to deliver sector-leading USD revenue growth of 21% yoy in FY15E. Deutsche Bank AG/Hong Kong Page 5 7 January 2014 Software & Services Indian IT Services We expect TCS to deliver earnings CAGR of 20% over FY14–16E, with Streethigh FY15E EPS of INR117.5 (5% ahead of consensus). Figure 3: Recommendation summary Company Recommendation FY15E Target P/E Target Price Current Upside/(Do EPS (INR) (INR) price (INR) wnside) TCS Buy 117.5 24 2,900 2,222 31% Tech Mahindra Buy 154.3 14 2,200 1,836 20% 17% Wipro Buy 37.1 17 650 555 Infosys Hold 207.6 18 3,660 3,565 3% HCL Tech Sell 84.50 12 1,040 1,260 -17% Source: Deutsche Bank, Prices as of 3 January 2014 rd Page 6 Deutsche Bank AG/Hong Kong 7 January 2014 Software & Services Indian IT Services IT spending on an upsurge Key markets return to growth – positive for tech spending A significant improvement in the macroeconomic outlook for major western economies (US and Europe account for 55–60% and 25–30% of revenues for the Indian IT services vendors, respectively) is the key reason we maintain our stance. Our US economists believe that the US economy’s underlying growth rate will accelerate further in 2014 to about 3.5% and it could be closer to 4%. In the euro area, emergency crisis management is giving way to emerging economic recovery. Our European economists expect t...
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This document was uploaded on 02/06/2014.

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