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Unformatted text preview: national vendors. We expect the company to
deliver earnings CAGR of 20% over FY14–16E (vs. 15% for Sensex). Thus
despite outperforming Sensex by 63% in CY13, we still reiterate it as a Buy and
our top pick with a Street-high target price of INR2,900.
Tech Mahindra and Wipro are next best
Tech Mahindra 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 TechM to win market share.
We expect the company to deliver earnings CAGR of 14% over FY14–16E. We
retain Buy with a target price of INR2,200. While both Wipro and Infosys
benefit from the improvement in the demand outlook, we believe that Infosys’
operating margins will continue to remain under pressure in FY15E. Thus,
given its superior earnings growth forecast (17.7% CAGR vs. 15.8% for Infosys
over FY14–16E), we expect Wipro to trade at par with Infosys (vs. the current
~12% discount to Infosys’ one-year forward P/E) and hence retain our Buy
rating on the stock with a target price of INR650.
Key risk – negative implications of potential US immigration reforms
We continue to value the stocks at 12–24x one-year forward earnings (relative
to their historical trading range and compared with peers, as well as growth
rates). We are closely watching the progress of the US Immigration Bill and its
implications for Indian IT services vendors; this continues to be the key risk to
our forecasts. This report changes price targets, and/or estimates for several
companies under coverage (see Figure 23). Research Analyst
(+91) 22 7180 4037
TEML.BO Target Price
- Source: Deutsche Bank Top picks
Tata Consultancy (TCS.BO),INR2,239.60 Buy Source: Deutsche Bank Companies Featured
Tata Consultancy (TCS.BO),INR2,239.60...
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This document was uploaded on 02/06/2014.
- Spring '14