Infosys Q3 likely to be in line with expectations: Yogesh Mehta, Motilal Oswal Financial Services
On TCS’ PE multiple side, 19 times FY20 and 21 times FY21 is very much justified, says Mehta.
What did you make of the TCS commentary?
TCS numbers are good and digital revenue has grown wonderfully well. Even retail media and BFSI are improving and rest of the part is also improving. Overall, if we compare with year-on-year growth rate, those are decent enough and if we compare sequentially also, the growth rate is very good.
Other income is one part which needs to be watched out for it has substantially increased. That is why the PAT margins are on the higher side vis-à-vis EBITDA margins which is a bit disappointing, maybe a 5% declines in our estimates. It seems that higher ROA, ROCE and the capital redeployment is the one key criteria and the visibility on growth for the next two years on the US, Latin America and UK, which has surprisingly moved up by 20-22.5% in this quarter.
We believe that 9%-10% growth trajectory for the next two financial years is very much achievable and hence we believe that on the PE multiple side 19 times FY20 and 21 times FY21 is very much justified. We do not foresee any significant disappointment or immediate reaction on the stock.
But do you think that what TCS says and does would have a meaningful impact on the rest of the sector? What is your pecking order within IT?
TCS is a benchmark leader and have largest top line PAT numbers and revenue numbers. For Infosys, we need to watch out for BFSI and retail segment and the guidance could increase from 6% to 7%. That needs to be watched.
Overall, in IT sector, it seems that Infosys will also be in line with the expectation of 1.5-1.7% sequential constant currency growth. The numbers are already estimated at this range and will deliver that much. Ongoing US and China trade war stance needs to be watched out for FY19 and FY20 numbers for this. If currency movement -- which has seen 8.5% overall fall for the last quarter -- sustains at this level, then it is a different thing but otherwise further depreciation or appreciation in currency will marginally impact the estimates for all IT companies including TCS. But we believe that the IT sector momentum will continue at 2.5 to 5.5% constant currency growth rate.
What is the call on Eicher Motors at 20,000 currently?
Since last time also, we had a conversation that Rs 70,000 was the plateau for seven to nine months continuously on the running of the money sales number. It tapered to Rs 58,000 in December and the waiting period is also now cutting down and the production is also slowing down due to demand. That way, at around Rs 20,000 level, we may see some increase in demand after two, three quarters. Till then, the flattish number and the 20-25% growth rate will sustain for at least FY19 next quarter.
For FY20 we need to really see that when the new launches come and how the response turns out to be. We believe that it would be a wait and watch kind of approach at current level. A technical bounce back could be possible on the fundamental approach. It will be a stagnant kind of a situation and one would not be really keen to invest into Eicher Motor at this point in time.