Infosys and Wipro’s performance have been enough to enthuse the Street to believe once again that IT is the best way to go?
Absolutely. Wipro’s numbers were way ahead of expectations. Now the company is on track to deliver big deal signings for the next quarter. The company has grown its revenue 18% sequentially and that is a phenomenally big number for a company of its size.
The current revenue growth rate of Infosys is 17-18%. In roughly four-five years, the company’s revenue base would have doubled in size. This is important to take in context when determining valuations because PE multiples are not as important when the top line is growing. Against this backdrop, while some of the strong quarter was expected, the medium term outlook for these stocks remains very strong for both large and midcaps.
Are you seeing a divergence coming out in the sector especially when you look at the TCS quarterly performance versus the rest?
Just a case of delayed contract signing which pushes out the revenue. It does not tell anything much beyond that. It is on an extremely strong wicket and so was rest of the IT companies and they have delivered one of their best quarters ever in terms of not just absolute revenue growth but in terms of just the deal sign.
Wipro’s attrition is 20% — one in five employees is leaving the company in 12 month’s time. Why wouldn’t anybody leave if they are getting a bigger and better salary somewhere else? This environment is going to continue. The digital revenues for Infosys is over 50% now and the same trend will accelerate for TCS as well. TCS has one of the highest accreditations in the Indian IT services industry and therefore TCS will also do well in the coming quarters.
While TCS is a well discovered story, now the likes of Tata Power, , Tata Chemicals — the laggards within the Tata Group — are now beginning to outperform. Where within the Tata Group ex TCS and , are you willing to place your bets?
Chandrasekhar has been a lucky mascot for the Tata Group over the last few years. Tata Chemicals the company trades at about 17-18 times now. As the world moves towards EV, they are not just electric vehicles but electric chargers of all kinds. A lithium ion battery plays an important role. Tata Chemicals is expanding its presence over there and if you look at its current valuations versus growth potential, global lithium ion companies trade at far higher multiples. Of course, globally lithium ion uptick is far higher simply because they are ahead of the curve but that is what one can expect from Tata Chemicals so there is a strong rerating of fundamentals which will and therefore the stock price will continue to do well.
Tata Power has been languishing for several years despite the run up over the last couple of months. The company still has big mines all over the country and also outside the country and in a period of huge coal and power shortage, the company is placed well for the short term and as well as for the long term because various companies are moving towards various sources of renewable devices and renewable sources and Tata Power is also in the game. It is also a strong rerating candidate.
Another stock that has been much in focus this entire week is Avenue Supermart, the owner of D-Mart. It has crossed Rs 3 lakh crore market cap. Look at the rise it has had. What is your assessment?
It is a beneficiary of a return to normalcy post pandemic. We are still in the pandemic, but post lockdown, unfortunately it coincided with roughly 900 million plus people being vaccinated. Lockdowns therefore are being eased and people are beginning to come out with the festival season. All these things bode well for Avenue Supermarket.
Valuations are less important at this time because earnings were depressed and the year over year growth is something which is misleading given the low base. Avenue Supermarket is well placed over the coming quarters and we expect to see an earnings beat in the next two or three quarters.
