IT STOCKS - TCS LEADS THE PACK

By Ruma Dubey

It is once again time to see, who stacks up how. There are four bigwigs in Indian IT sector but because HCL Tech ends its year on 30^th June 2013, we have not taken the company for comparison= here.  TCS, Infosys and Wipro have all ended their year on 31^st March 2013. So who emerges right at the top?

Like it has been for some time now, the  crown rests on the head of TCS. From all aspects, TCS emerges right on top,  with the highest revenue, both in rupee as well as dollar terms. In terms of the operating margins too, TCS is at the top. And most importantly, its net profit is the highest in the sector for FY13 at Rs.13,491 crore,. Attrition rates, employee count and even utilization rate, TCS is number one. But in terms of clients being added, Infosys has taken the lead in terms of geographical growth, Wipro has shown the best all round growth.

In terms of guidance, Infosys takes the lead when it comes to presenting a somber picture. The company, for FY14 has guided a revenue growth at 6-10% much lower than what most analysts had expected and more importantly, lower than the 10-12% growth estimated by the IT industry body NASSCOM. The company has given no EPS guidance. The market continues to remain disappointed with Infosys as it had upped its expectations post its Q3 numbers and there had come in a slight feeling of things turning around.But apart from the performance, the conservative guidance and the management giving a very cautious outlook for the future, despite the overall industry outlook improving has spooked the markets. So the questions being asked is whether this is an issue with Infosys alone or that of the management.

TCS does not give guidance but it had a very optimistic view for the future as the management has stated that it expects to beat NASSCOM’s 12-14% growth estimation for the sector.

Wipro remained the top loser on the BSE today, ending 8% lower. The reason – a very muted outlook for Q1FY14, stating that it expects revenues from IT services business to be in the range of US$ 1,575 million - 1,610 million, which is actually a 0.6% decline on a sequential basis.

A quick word about HCL’s Q3 performance for period ended 31^st March 2013. The company posted a 73% (YoY) rise in net profit at Rs.1040 crore. Might be more of a lower base effect as sequentially, the rise was just 8%. Its revenue was up 23% (YoY) at Rs.6425 crore. QoQ, the rise was much smaller at 2%. EBIT was up 56% (YoY) and just 3% (QoQ). Its EBIT margin remains healthy at 19.9%, a tad bit shy of 20%. Growth mainly happened in healthcare, which was up 56%, retail was up 19%, media and publishing rose 15% and financial services rose 11%. Its main geographies – Europe rose 18% and America by 13%.

HCL Tech does not give guidance and hopes to continue to do better through client mining, which is to get more from same clients, targeting large contracts coming up for renewal offering better pricing to the customers.

So then, which is better amongst the biggies? Purely in terms of fundamentals, TCS emerges on the top and HCL shows much potential going ahead. In terms of pure stock market logistics, TCS has gone up substantially and trades at a higher PE to Infosys. This makes calling out aggressive prices on the counter extremely difficult. On the other hand, Infosys has been battered down a lot and things might look up in H2FY14. Most brokerage houses have given a buy on TCS and HCL and maintain a cautious outlook on Infosys, with many even calling a sell and outlook remains mostly muted on Wipro.