Indian IT companies Result and Valuation comparison

Stocks of software service companies in India has been on tear away rally since the beginning of this year and top 5 biggies (TCS, Infosys, Wipro, HCL Tech, Tech Mahindra) are up anywhere between 50% to 75% YTD. 

The run up in IT stocks in India happened on the back of two primary reasons - better demand outlook in US & Europe and massive depreciation of Indian currency vis-a-vis USD-GBP-EUR. CNX IT index is up more than 50% since January 2013.

CNX IT Index 3 year Chart

Sell Infosys 1700 Put Option of July series at 6.50

With Infosys q1 result scheduled on 12th July, the Implied Volatility across deep in the money Puts and far out of the money calls are very high resulting in reasonable premiums for even 1700 Put or 3200 calls which are almost 30% away from current market price of 2540.

In our view  1700 Put option is highly safe considering the current valuation of the company and expectation from N. Murthy. 

Traders can sell Infosys 1700 put at current premium of 6.5 thereby earning a return of almost 2.5% in 14 days.

Total Return from the trade:

Considering one is able to sell the July Put option of Infosys 1700 strike price at current market premium of 6.50 he/she can generate following return from this trade:

Sell Infosys 2000 PUT at 6.40

With so much noise about Infosys having delivered pathetic set of numbers, here is an opportunity to pocket quick 1.7% return in 8 trading days by being just contrarian and selling Infosys 2000 put at CMP of 6.40. 

The stock had fallen 25% in two days and is approaching very attractive valuation levels. At 2000 Infosys will be valued at 11.5 times FY-14 EPS, above that cash based buyers will get at least 45 bucks as dividend next year and 27 bucks this year which is total dividend of 72 bucks in 1 year time frame. Also 2000 should act as very strong psychological support. Apart from that with 22000 crores in cash the company is available at an enterprise valuation of just 1,05,000 crores which is almost 2 times FY-14 sales.

Morgan Stanley overweight on Infosys: Target 3300

Infosys, the second largest software exporter of India, has been doing quite well post it's second quarter result and has seen series of upgrades for the stock. InvestorZclub also recommended the stock in it's post "Contrarian Stocks to Buy in 2013". The stock has run up more than 30% since the recommendation was made at a price of 2300. 

In spite of the huge run up in Infosys stock since past couple of months, Morgan Stanley is still bullish and expects the price to further rise to 3300. It says "While the external environment has not changed materially, the internal operating environment at Infosys has improved significantly". 

LIC Stake in Infosys Technologies

India's largest Life Insurer, Life Insurance Corporation of India (LIC), has hiked its stake in Infosys to 7.24% by purchasing additional 2.32% shares in the company so far this financial year. The company held 4.92% stake in Infosys at the beginning of the current fiscal on April 1, 2012.

At current market price of Rs 2350 the LIC's stake is worth around Rs 9700 crores which is highest among all the institutional investors in the company. Besides LIC, a number of other large investors also hiked their stake in Infosys during 2012. These include foreign funds like Oppenheimer, Franklin Templeton, Aberdeen and Vanguard.

Contrarian Stocks for 2013

With NSE Nifty up 26% in 2012, people who largely took a bullish call in 2011 on Indian equities made handsome gains. However like every rally not all stocks participated and there were clear winners and losers as far as individual stock performance were concerned. 

But all is not that bad for the stock that didn't do well last year as some of them has become  candidates in the category of contra bets. Value investors always believe in contrarian investing as only that style gives them the opportunity to buy stocks cheap. Value Investors believe that by chasing euphoric stocks you run a very high risk of quick erosion in stock prices in short span of time due to profit booking or bubble burst. 

CLSA downgrades Infosys - Target price 1566

CLSA in its global research report said Infosys stock could fall 40% from the current levels in 12 months. The report has fixed the price target at Rs 1,566. The report further added that sector multiples are likely to keep de-rating. The recent appreciation in the Indian currency might prove negative for the sector as well as for Infosys and its prices could fall. A 4% strengthening of the rupee will hurt Infosys earnings by about 5%. And a 13% move in the rupee would reduce earnings by 17%. In the first half of the year 2012, most of the Infosys earnings came from the nearly 8% rupee weakening. 

LIC holdings in Infosys crosses 6 percent

Life Insurance Corporation of India (LIC India) doesen't seem to be bothered much as far as Infosys under performance is concerned and is playing contra by investing an additional sum of Rs 2,000 crore in the first quarter of the current fiscal. 

LIC seems to be taking advantage of the blue chip stock being available at historically low valuation. At the current market price of Rs.2150 the stock is trading at a PE multiple of 12.5 times based on FY-13 expected EPS of 170 which is very cheap considering the size and the quality of the company. LIC is the largest non-promoter shareholder of the company.

Infosys Q2 FY 2011 - 2012 Result Analysis

Infosys Q2 (FY 2012) consolidated net profit came in at Rs 1,906 crore, up around 11% as compared to Rs 1,720 crore in previous quarter (Q1 FY-2012).

The company’s revenues was up around 8.2% in the quarter to Rs 8,099 crore vs Rs. 7485 crore during the same period.

Earnings per share for the July-September quarter of 2011 was at Rs 33.3 as against Rs 30.14 in the previous quarter. 

The result was largely inline with consensus expectation. Dollar revenues growth guidance for FY12 lowered to 17.1-19.1% as against earlier guidance of 18-20%.

Goldman Sachs Downgrades Top Indian IT Companies

Goldman Sachs has cut the price target for India's top tier IT companies after the announcement of dissmal jobs data from US on 2nd Sep 2011 which has triggred the fear of US falling into recession again. 

Infosys Technologies Technical Analysis - 2011

Infosys Q1 results analysis

Infosys Q1 consolidated net profit stood at Rs 1,720 crore, down 5.4% as compared to Rs 1,818 crore in previous quarter. The company’s revenues rose 3.2% in the quarter to Rs 7,485 crore. On a full year basis, net profit rose 15.72% from Rs 1,488 crore and revenues rose 21% from Rs 6,198 crore in the year-ago period.

Infosys Management Change

Infosys Technologies, India's second largest software exporter reshuffeled its top managment to steer the next level of growth in the company and stay ahead in the competition with TCS, Cognizant & Wipro. The latest Mangement team announced is

Chairman - K V Kamath, formerly ICICI Bank Chairman, replaces Narayan Murthy


CEO & MD - SD Sibulala, formerly COO of Infosys


Executive Co-Chairman - Kris Gopalakrishnan, formerly CEO & MD of Infosys

ICICI Direct recommends Infosys as Strong Buy

ICICI Direct has adjusted their FY12E and introduced FY13E estimates. Their estimates assume 18%/13.5% CAGR rupee revenue/EPS growth during FY10-FY13E. They have valued Infosys at 20.9x its FY13E EPS of 160, a discount relative to its historical one year average forward PE of 22x, to account for the longer time horizon. Consequently, they have changed their rating to STRONG BUY with a 12 month target price of | 3350 per share.