We retain our buy on wipro with a revised target

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Unformatted text preview: o’s operating performance improves in FY14E, we expect this discount to evaporate. We retain our Buy on Wipro with a revised target price of INR650. Infosys – loss of senior talent and pricing pressure delays recovery In our view: (a) recent significant loss of senior talent, (b) pricing pressure on existing business as a fallout of pricing aggression shown on new deals and (c) inferior positioning in a key growth market, continental Europe, will result in Infosys underperforming peers for yet another year. We expect the company to deliver an earnings CAGR of 15.8% over FY14–16E and believe that the stock is fairly valued at 18x FY15E. Hence we retain our Hold on the stock with a revised target price of INR3,660 HCL Tech – outperformance likely to reverse in CY14 We reiterate our Sell on HCL Tech with a revised target price of INR1,040. We expect the company to deliver an earnings CAGR of 6.2% over FY14–16E. HCL Tech rose 104% in CY13 and has outperformed Sensex by 96%. In CY14E however, we believe HCL Tech will struggle to: (a) maintain its revenue growth leadership in the sector, (b) improve revenue traction outside of infrastructure management services and (c) sustain margin improvement. Therefore we prefer TCS, TechM and Wipro to HCL Tech. Page 4 Deutsche Bank AG/Hong Kong 7 January 2014 Software & Services Indian IT Services Figure 1: Key forecasts and assumptions ----------------Infosys----------------- ----------------TCS----------------- ----------------Wipro----------------- ----------------HCL Tech---------------- FY15E FY16E CAGR FY14FY16E FY15E FY16E CAGR FY14FY16E FY15E FY16E CAGR FY14FY16E FY15E FY16E CAGR FY14FY16E 9,629 11,189 15.9% 16,389 19,936 21.3% 7,754 9,036 16.7% 6010 6889 14.1% Revenue 579,231 659,513 14.3% 985,818 1,175,016 19.5% 514,606 593,586 16.5% 359,192 404,014 11.3% Gross Profit 211,387 235,500 11.0% 474,321 562,539 19.1% 183,163 211,268 18.5% 126,264 137,585 7.0% EBITDA 148,251 169,549 13.3% 297,609 345,590 16.5% 121,72...
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