We believe the lopsided revenue growth profile of hcl

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Unformatted text preview: g laggards, we continue to prefer Wipro to Infosys. We believe the lopsided revenue growth profile of HCL Tech will pose growth concerns; hence we reiterate our Sell on the stock. TCS – continues to be our top pick and core holding in the sector We believe TCS will be the biggest beneficiary of the overall improvement in IT services spending in CY14E. In particular, advantages like: (a) diversified geographical and vertical exposure, (b) a strategic vendor status with most of its top customers and (c) share gains by displacing incumbent multinational vendors should enable TCS to continue reporting sector-leading earnings growth in our view. We expect the company to deliver earnings CAGR of 20% over FY14–16E. Thus, despite a 63% outperformance vs. Sensex in CY13, we reiterate Buy and our top pick status with a Street-high target price of INR2,900. Tech Mahindra – ideal combination of aggression of TechM and Satyam’s relationships We believe that the merged entity has the ideal combination of the aggression of Tech Mahindra (standalone) and Satyam’s relationships. In our view, a strong balance sheet and extremely competitive pricing would enable the merged entity to win market share. We expect the company to deliver earnings CAGR of 14% over FY14–16E. Improved revenue outlook and undemanding valuations make it a candidate for a P/E re-rating. We reiterate our Buy with a target price of INR2,200. Deutsche Bank AG/Hong Kong Page 3 7 January 2014 Software & Services Indian IT Services Wipro – we continue to prefer Wipro over Infosys on attractive valuations We believe the improved IT spending outlook for CY14E should help laggards such as Wipro and Infosys. Although we forecast both Wipro and Infosys to report a 4–4.4% CAGR in USD revenue over FY15E, we maintain a positive bias for Wipro over Infosys. We believe that despite our superior earnings growth forecast (17.7% CAGR vs. 15.8% for Infosys over FY14–16E), Wipro is trading at a ~12% discount to Infosys’ one-year forward P/E. As Wipr...
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This document was uploaded on 02/06/2014.

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