Infosys shares fell 3.4% Thursday morning while those of Wipro fell 3.7%, despite good quarterly results reported by the two information technology companies. On Wednesday, Infosys reported a 12.3% year-over-year increase in revenue while its net profit rose 16% to Rs 5,200 crore. Wipro, on the other hand, said its revenue grew 1.3% and its net profit jumped 20% on an annual basis. Does this weakness in the share price of the two IT majors present a buying opportunity for investors or is it a sign of staying on the sidelines despite the stellar results posted by companies?
Infosys – Global growth and strong transaction pipeline
Motilal Oswal analysts point out that Infosys has recorded its best quarterly revenue growth in the past eight years. “The company announced its best TCV of $ 7.1 billion (73% new net earnings), 2x book-to-bill and above the combined TCV of the past three quarters,” the brokerage firm said in a report . They added that Infosys will likely continue to benefit from a pickup in IT spending over the next fiscal year.
Infosys has raised its revenue forecast to 4.5-5% from 2-3% previously given for the current year, while raising the EBIT margin range to 24-24.5%. “We believe that 23-24% can become a sustainable band in the absence of price pressure and even increase for digital skills, structural efficiencies that suppliers can keep, such as offshore transfer and pyramid correction,” Kotak Securities said in a note. Almost all geographies showed growth on a year-over-year basis for Infosys.
Edelweiss Securities has a “Buy” call on Infosys with a target price of Rs 2,124 per share. “We maintain that Infosys, given its significant contribution from cloud and digital, remains one of the main beneficiaries of this technological upgrade,” they said. Kotak Securities pinned a fair value of Rs 1,530 per share while Motilal Oswal has a target price of Rs 1,600 each, both with a “Buy” rating. Infosys shares are currently trading at Rs 1,343 per share.
Wipro – get your mojo back?
After a few disappointing years, Edelweiss analysts said Wipro now appears to have returned to growth, with most segments contributing to the push. “Five of the seven strategic business units grew by more than 4% on a sequential basis (in cc), driven by strong demand for digital transformation. Europe and the Americas grew at a steady pace, while the rest of the world was slightly weak, ”they added. Wipro successfully closed 12 new transactions during the October-December quarter.
Wipro gave a growth forecast of 1.5-3.5% for the next quarter, which Kotak Securities rated as reasonable. “Wipro has made sweeping changes to organizational structure, roles and staff. The changes are bold and move away from the gradual changes of the past, ”they added. The forecast should help Wipro return to growth on an annual basis in March of this year. Although Motilal Oswal expects Wipro to post double-digit USD growth next year, he expects some hiccups. “We continue to see Wipro’s growth lag behind that of its peers as we await the impact of its new strategy on growth and see limited leverage on margins from current levels,” said Motilal Oswal analysts.
Motilal Oswal has a “neutral” rating with a target price of Rs 450 on the share, indicating that current valuations value performance quite well. Kotak Securities has an “Add” rating with a fair value of Rs 465 per share, which warns that growth is unlikely to converge with its peers. Edelweiss Securities has a “Buy” call with a target price of Rs 550 per share. Currently the stock is trading at Rs 442.
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