Trideep Bhattacharya of UBS says that he expects Satyam to beat the Q1 guidance, and they are positive on the stock. He further states that they continue to favour large caps and HCL Tech and Infosys are their top picks.
He adds that Infosys FY07 EPS is seen at Rs 130.50 and FY08 EPS is seen at Rs 165 (Cum Bonus).
Speaking on Wipro, he says that their results may be lukewarm due to the BPO drag and they are not recommending Wipro due to its valuation premium to Infosys.
Excerpts from CNBC-TV18's exclusive interview with Trideep Bhattacharya:
What are your key takeaways from Infosys, the management conference call and what you are doing now in terms of your EPS forecast for FY07-08?
In my opinion, the results of Infosys Technologies not only bodes well for the stock or the company itself, but also from the sector perspective. I think that heading into the results, there were a lot of concerns on the growth slowing down on the back of mixed data points coming out globally.
I think that their quarterly results and their annual guidance allays a lot of those fears, keeping in mind that the increase in estimates have been quite substantial at Infosys Technologies.
We are looking at Rs 130.5 as EPS for FY07 and Rs 165 for FY08. So the stock, which was looking a bit expensive after the rally, which it had, is now again back into its historical PE band range.
This makes me feel that over the next one-year perspective, the price target of Rs 4,000 is something that can be justified. From the other sectors' standpoint, clearly the results will have a rub off on other companies, which will report their results. But in my opinion, keeping the market mood and the sentiment in mind, we are positive on TCS and HCL Technologies as we head into the results.
For both those companies, what are your expectations in terms of revenue growth?
One can by and large expect about 8-10 per cent kind of a growth between these two companies, depending on where the currency impact ends for these companies. Margins may cool off a bit in TCS because of the wages, visa cost and the impact of the Pearl Group.
But overall, the ramp up will show that the demand momentum is robust. So it will be a similar kind of a theme like that of the Infosys results, though the topline growth might now be as strong as we have seen there.
In the case of HCL Technologies, the recent contract signing of the Old Mutual or Skandia, along with the results itself should mean positive data points coming out of the results and hence, both these stocks are something we are positive on.
What about Satyam, that was the one, which under performed or fell off quite sharply after its results and guidance in the previous quarter. Do you think they will come in and say something a little bit more optimistic than what they had to share with the market last time around?
I think they will definitely share positive data points, with respect to what they had said earlier. But the results will stack up as well as we have seen in the case of Infosys. So particularly, because this is not the critical quarter, the critical quarter for Satyam Computer Services will be the September quarter when the wage increase actually kicks in.
So ahead of that, there will be volatility in this stock, but I expect them to beat their guidance and report decent numbers if not as great as Infosys. So we are recommending the stock, but we are saying that the performance on the stock will be loaded in the second half of the fiscal year.
Infosys has seen some gains in terms of its billing rates as well. Is that something you expect to see for the tech pack, better volumes on better billing rates this time?
I think for Tier I companies, yes and for the Tier II companies I am not expecting the same. By Tier I companies, I mean companies like Satyam, HCL Technologies and the rest of the pack. Tier II, not in a derogatory sense but probably, mid size companies is a right way to look at it.
What do you track at UBS from the midcap space and anything that you have a buy rating or an overweight rating on?
We prefer largecaps and even ahead of the results, Infosys and HCL Technologies were two of our top picks and we continue to favour largecaps though we do track midcaps like Mphasis BFL, Polaris Software Lab etc.
What about Wipro, what could they deliver this quarter?
This quarter will be a lukewarm quarter for them because on the BPO side, the growth might languish a little bit. On the IT services side, the growth is expected to be strong. What remains to be seen is how they leverage the acquisitions that they have made in the past, to accelerate the growth that we have seen in the company.
If they are able to do that, then they will get premium valuations otherwise, if the integration issues eat into the margins more than what is known, then that could be a risk to the stock. At the moment, we are not recommending Wipro, given the fact that it is trading at a valuation premium vis-à-vis Infosys and TCS, in both of which we see lesser risk at the moment.
When you speak to your clients, do you get the sense that most of the large investors; local or global were underweight or overweight on technology going into the Infosys numbers? Would weightages need to be adjusted accordingly or did most of the fund managers that you speak to have an overweight position in technology or large caps tech already?
Technology has been underweighed since the beginning of this year. The weightage for the fund managers has gone up as we head into the results. People were a little jittery after the run that we saw ahead of the results, but now people are looking for ideas, apart from Infosys where they can put in their money to increase their tech weightage.
Yes, they are looking to increase their weightage, but not exactly in the stocks, which have run up, they are trying to find stocks, which have not run up.
What is your call on technology as a sector and any concerns that off shoring might have lost flavour as a business?
If at all from the macro environment, while we have seen some mixed data points coming out, we still are in a comfort zone that the offshore services sector, given its cost cutting characteristics should actually do well. Should the US economy go into a recession or should there be a sharp deceleration in the growth in the US economy, it is a worrisome data point to take into account.
But at the moment, looking at the various macro economic variables that we are seeing, particularly in the US etc, we do not think that over the next 6-9 months or at least in CY06, we are going to see anything meaningful in terms of deceleration of growth probably driven by the macro economic slow down. For CY07, we will have to take a call closer to the end of the year.
For more on markets & business, log on to www.moneycontrol.com
