TCS looks better than Infosys on valuation plank

One can build a case for out performance for TCS versus the rest, and not because of what they came out and said yesterday because I didn’t understand where the surprise was from TCS yesterday. The only surprise or the departure between TCS and Infosys was that Infosys gives full year guidance and TCS does not because the Infosys Q1 numbers were not bad at all, they were ahead of street expectations, they have done a reasonable job with their margins as did TCS and they did reasonable job with their topline as well. So if one compared the quarter numbers with TCS and Infosys, I think both came out with reasonable numbers, just that TCS never talks about full year numbers and Infosys came out and said they will revise their guidance downwards.

I don’t think there was any great reason for the market just on the evidence on quarterly numbers to say Infosys is bad and TCS is good. But I think there is a departure now on the valuation plank because if you just look at Infosys is trading at 24times expected even if you assume that they will do Rs 80-81 they are trading at 24 times current years earnings.

TCS assuming that they will do something between Rs 53-54 this year is trading at 21 times and that is 15% valuation gap between TCS and Infosys on similar kind of growth numbers which both are expected to clock.

So if one is comparing the two in difficult environment not knowing what the rupee will do and you still want to be in big IT, you would buy something at 21 times and not 24 times. If one is asking whether TCS has more cushion of comfort built-in, the answer is certainly yes. You can justify it at the end of year if the rupee goes really haywire, can stocks like TCS and Infosys trade at 25 times, it could at the end of the year in which case you can build a Rs 1,350 kind of scenario for TCS which is Rs 200 upside from current levels but Infosys is already there at 24 times and so even if it gets to 25, it doesn’t give you too much bank for the buck.

So relatively speaking between the two you could argue for TCS more than Infosys.