Infosys vs TCS: Which stock is a better bet at the current levels?

Post the results, most brokerages have revised their price targets for both these stocks.

Infosys and Tata Consultancy Services announced their respective June quarter results for the financial year 2019 – 20 (Q1FY20) last week. While Infosys registered 5.26 per cent rise in its Q1FY20 net profit at Rs 3,802 crore, TCS saw an uptick of 10.74 per cent in its profit after tax (PAT) to Rs 8,153 crore.

An uptick in demand for its digital services, apart from a momentum in the large deal space, prompted the Infosys to raise its FY20 revenue guidance to 8.5-10 per cent from 7.5-9.5 per cent as guided earlier. The company now plans to return 85 per cent of the free cash flows (FCF) in the form of buybacks or dividends on a five-year cumulative basis (70 per cent earlier).

Post the results, most brokerages have revised their price targets for both these stocks. For TCS, The number of ‘buy’ ratings for the stock has reduced from 27 to 23, while ‘sell’ calls have increased from 7 to 9. The average 12-month price target has also seen a slight reduction On Monday, Infosys reacted to the Q1FY20 results announced post market hours on Friday, with the stock rising over 4 per cent to Rs 758 levels.

Here’s how brokerages have interpreted Infosys‘ results:

Nomura

We believe increased FY20F revenue growth guidance, strong deal win momentum and improved capital allocation policy are positive. Our target price of Rs 680 is based on 16.5x FY21F EPS of Rs 41.4. The stock is trading at around 17x FY21F EPS on consensus estimates. We prefer HCL Technologies in the IT services space. Material margin improvement and an improvement in the growth trajectory in BFSI/retail are key risks to our thesis.

Jefferies

Management indicated broad-based demand across verticals & geographies, helped by digital adoption and large transformation projects. In BFSI, challenges in select US banks due to M&A and in capital markets across Europe & US are being offset by strength in other segments, such as retail banking and cards & payments. European manufacturing and healthcare are relative weak spots. High attrition in Q1FY20 was partly attributed to seasonality and involuntary attrition.