Date: 24th May 2012
This update of the April 19 article by JainMatrix Investments includes FY12 results of all three firms.
A comparison of top Indian IT stocks, Infosys, TCS and Wipro throws up some interesting insights. Infosys, the long time leader and IT bellwether, is losing its pace of growth. It is still ahead in terms of Valuations and Margins. However, TCS has handled the difficult business environment the better, and has accelerated EPS in the last 3 years. The Elephant can Dance – Hail the new leader – TCS
One of the Subscribers on JainMatrix Investments raised a query – here it is:
Hi Punit, I have a question about the IT sector stocks. I own Infy, TCS and Wipro. How can I evaluate which one is better? From the share price trend over few years, TCS has performed the best. What are the other parameters to check and which is best according to you? I would ideally want to sell two of them and have only one, so not sure which is the best. Regards, S.
I would like to dedicate this post to answering this question.
Of these three, Infosys is of course the bellwether – the traditional indicator of the health of the sector. TCS in the 8 years since the Aug 2004 IPO has shown healthy growth, and finally Wipro, the soaps to software conglomerate is also a top player. Today’s Market Prices of these are: Infosys 2380, TCS 1221 and Wipro 392
1. Five year snapshot of key financials
Let us first look at a 5-year snapshot of financials of the three. This can give us good visual feel of the relative and absolute financials of the three.
Infosys Financials – JainMatrix Investments – Click to enlarge
TCS Financials – JainMatrix Investments
Wipro Financials – JainMatrix Investments
2. Detailed Comparison
Next we will look at a detailed comparison of the firms in terms of valuation, growth characteristics, debt, shareholding pattern, etc.
See LINK (thanks to Edelweiss Financials for the excellent data). We can see from this analysis that on 5 important parameters:
- Valuation – Wipro is now the cheapest, TCS most expensive
- Growth – TCS is better of our three
- Management effectiveness – TCS clearly leads
- Solvency and Margins – Infosys clearly leads
- Market performance – TCS clearly leads of our three
A copy of this data is available below – dated 24th May ’12.
IT Sector Performance Snapshot – JainMatrix Investments
3. Key Trends in Price and Earnings
Finally, let us look at a 5-year snapshot of Price, P/E and EPS of the three stocks, from my charts.
The Infy Price and PE Chart indicates that the PE has averaged 21 in the last 5 years. After the recent results, it has fallen sharply. Currently it is at a discount to this average.
Infosys Price and PE Chart – JainMatrix Investments
Infosys Price and EPS – JainMatrix Investments
TCS Price and PE – JainMatrix Investments
TCS Price and EPS – JainMatrix Investments
Wipro Price and PE Chart – JainMatrix Investments
Wipro Price and EPS Chart – JainMatrix Investments
The Decision Table:
Finally, the decision is made by comparing the 5-year CAGR growth on key parameters:
IT Sector Decision Table – JainMatrix Investments
Notes: PE is as on 24th May
1. The Elephant can Dance – Hail the new leader – TCS
- The largest player, TCS, leads on Growth, Management Effectiveness and Market Performance. In the Decision Table, it leads on EPS, Revenues, EBITDA and PAT. Market Price and Valuations reflect this leadership.
- Valuations wise TCS is more expensive than Infosys, but note that the consistent leader will always command premium valuations, as Infosys had till 3 years ago.
- The past 3 years have not been the best of times for the IT industry, but the performance from TCS should get better as the developed economies recover
- Clarity in leadership plan and strong leaders helps in many softer aspects such as Acquisitions, new business lines and corporate aggression. TCS also scores here.
2. Infosys remains a defensive play
- Infosys leads on parameters like Valuations and Solvency & Margins. In the Decision Table on Valuations, it is the cheapest of the three.
- Perhaps the superior margins that Infosys commands has clashed with poor market conditions in the developed economies.
- It does not help that there seems to be a lack of top-notch leaders in the firm. This is a legacy issue, with the old promoters team calling the shots, rather than proven professionals.
- Infosys does not have a good record in acquisitions.
3. Wipro is recovering from a couple of top management changes
Wipro has not yet shown clear directions and results. It is neither a growth not a margins leader. This may change soon, but until then, it will be rated third of these three.
Based on the analysis done, I would put my money on TCS.
My recommendation is to transition smoothly, so try to switch from others to TCS over a period of 3-6 months, selling others monthly and simultaneously buying TCS.
Warm regards and profitable investing,
JainMatrix Knowledge Base:
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Disclosure and Notes: 1) It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it. 2) The above financial investigation is not comprehensive, but a short and sufficient study.
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