IT majors TCS, Infosys, and HCL Technologies will be announcing corporate results for the second quarter of the current fiscal (Q2FY23), July to September period, soon. The country’s largest software services firm, Tata Consultancy Services (TCS), is all set to announce its Q2 results on 10 October.
IT behemoth Wipro and Infosys will announce the financial results for the second quarter on 12 October and 13 October respectively.
Indian IT major Infosys could announce a share buyback along with its earnings for the second quarter ended September 2022 for the current fiscal (Q2 FY23), believe analysts at global brokerage Jefferies.
“Infosys could announce a buyback along with its Q2FY23 results,” Jefferies said in an earnings preview report. The broker did not comment on the expected size or pricing of the issue.
Buyback is the most tax-efficient way to distribute cash to shareholders. It is also used by some companies to arrest share price fall as it attracts more investors. Infosys is among the scrips that have seen selling pressure during the entire calendar year.
In the last five years, the company has conducted three buybacks. The largest one – worth Rs 13,000 crore was launched in November 2017, followed by Rs 8,260 crore issue in March 2019 and Rs 9,200 crore issue in June 2021.
IT Sector Outlook
ICICI Securities thinks that according to the result seasons of the past few quarters, the outperformance of NSE IT could reverse during the reporting of Q2FY23 results. The domestic brokerage said that macroeconomic challenges have worsened in the last three months. Thus, the impact of the macro weakness on the technology sector is visible, the report noted.
“We still believe deployment in the sector should be slow and gradual in
nature as there would be unknown risks ahead that might further degrade
valuations. We also believe there might be further consolidation in IT stocks until
we get clarity on CY23 IT budgets,” it added.
Edelweiss expects TCS, Infosys, Wipro would report a sequential revenue growth of 0.8 per cent, 2.9 per cent and 2.2 per cent, respectively, in dollar terms. It sees EBIT margin would improve by 60 basis points QoQ for TCS, 40 bps for Infosys and 30 bps for HCL Technologies.
In terms of bottom line, Nirmal Bang Institutional Equities sees Infosys logging 11.8 per cent YoY (up 13.1 per cent QoQ) rise in net profit at Rs 6,063.40 crore. TCS is seen reporting 5.8 per cent YoY (up 7.4 per cent QoQ) rise in net profit at Rs 10,182 crore. HCL Tech is seen clocking 9.6 per cent growth (up 9 per cent QoQ) in year-on-year profit at Rs 3,578 crore
Stocks to Pick
Jefferies has a ‘buy’ rating on Infosys and a price target of Rs 1,700, which suggests a healthy upside from here on. On the other hand, it has ‘hold’ ratings on TCS and HCL Tech. Its price targets on the two stocks suggest single digit upsides ahead.
Motilal Oswal likes all three stocks. “We continue to prefer Tier I players over their Tier II counterparts, given their relative valuation attractiveness and diversified client portfolio. Among Tier I players, we prefer TCS, HCL Tech, and Infosys. We expect Infosys to deliver a top quartile growth, backed by strong deal wins and price revisions. HCL Tech is one of the key beneficiaries of Cloud adoption at scale, given its expertise in IMS,” it said.
TCS, Motilal Oswal said, remains best positioned to benefit from the long-term structural tailwinds in Tech Services and should see a relative pickup in growth, aided by the base effect and increased aggression. This brokerage has a target of Rs 1,170 on HCL Tech (25 per cent upside potential), Rs 3,530 on TCS (17 per cent potential upside) and Rs 1,640 on Infosys (16 per cent upside potential).
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