Stock Recommendations-February 2023

Tata Consultancy Services (TCS), a subsidiary of Tata Sons Ltd, is a global IT services organisation. It provides a comprehensive range of services to its clients in diverse industries. The company caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing, pharmaceutical and utility industries.

In Q3FY23, TCS’ top line increased 19.1% YoY to Rs. 58,229cr (+5.3% QoQ), driven by increased demand for cloud services worldwide, vendor consolidation, and new deal wins across all verticals. Revenue from the Banking, Financial Services, and Insurance (BFSI) segment grew 11.1% YoY to Rs. 22,145cr on constant currency basis. Life Sciences & Healthcare, Technology & Services, Communications & Media, and Manufacturing segments grew 14.4%, 13.6%, 13.5% and 12.5% YoY, respectively. Operating margin improved sequentially to 24.5% (+50bps) led by tailwinds of currency movement (+70bps) and optimised subcontractors’ costs (+30bps), offset by third party expenses. 

 TCS reduced headcount by 2,197 (with 613,974 total employees) after six successive quarterly upticks to focus on the efficient utilisation of new personnel. LTM attrition rate in IT services was down slightly by 20bps QoQ to 21.3% in Q3FY23. The management expects attrition rate to go down in the quarters ahead. The company announced a dividend of Rs. 75 per share, including a special dividend of Rs. 67 per share during the quarter. TCS could pay-out 80-100% of free cash flow or net profit as dividends in the future.

TCS continued to win new deals in Q3FY23, supporting its sustainable long-term growth. The company’s deal closures stood at a total contract value (TCV) of $7.8bn compared with $7.6bn in Q3FY22. Particularly, BFSI and Retail segments had a TCV of $2.5bn and $1.2bn, respectively.

Strong order book, large new deal wins in the international markets, continual growth in the cloud businesses, enhanced productivity and cost optimisation are expected to support the company’s sustainable earnings in the future. We, therefore, reiterate our BUY rating on the stock with a rolled forward target price of Rs. 3,753 based on 25x FY25E adjusted EPS.

CMP: Rs. 3,362 (as on 20.01.2023)             

 Target Price: Rs. 3,753

Analyst: Vinod T P

Geojit Financial Services Ltd.


For Disclosures and Disclaimers: Tata Consultancy Services –

Infosys Limited provides IT consulting and software services, including e-business, program management and supply-chain solutions. It also offers application development, product co-development, system implementation and system engineering services.

In Q3FY23, company’s revenue rose 20.2% YoY to Rs. 38,318cr (+4.9% QoQ), despite a seasonally weak quarter. Revenue from digital offerings jumped 29.2% YoY to Rs. 24,103cr, increasing its share of total revenue to 63%. Core services revenue grew 7.5% YoY to Rs. 14,215cr. EBITDA increased 11.7% YoY to Rs. 9,367cr, while margin remained stable at 24.4% sequentially and declined 190bps YoY. The margin benefitted from favourable currency movements and cost optimisation, which offset traditional seasonal weakness and furloughs. PAT increased to Rs. 6,586cr (up 9.4% QoQ and 13.4% YoY), led by higher other income (+31.7% QoQ, +50.3% YoY).

All verticals are gaining traction, as reflected in the deals won. Energy, utilities, resources, and services grew 32.5% YoY (10.2% QoQ), and manufacturing grew 41.7% YoY (8.8% QoQ), with five deal wins each during the quarter. Communications grew 18.4% YoY (4.6% QoQ), and financial services rose 12.1% YoY (0.8% QoQ), with six deal wins each. Retail increased 18.8% YoY (5.7% QoQ), with seven deal wins. Further, the company won two deals in life sciences and one in high-tech.

Infosys has retained its margin guidance for FY23 between 21% and 22%. It has increased the revenue guidance from 15-16% to 16-16.5%. During the quarter, the company reported a steady decline in the attrition rate. The annualised attrition rate decreased by 6%. Consequently, its LTM attrition reduced to 24.3%, compared with 27.1% in Q2FY23. The company reported a strong total contract value (TCV) of $3.3bn (the highest in the last eight quarters) with 32 large deals.

Despite the prevailing macroeconomic uncertainty in the market, deal wins and the project pipeline for the company remain solid, positioning it well to capture market share with its strong execution. We see strong sustained demand driving revenue growth and contributing to continued earnings growth over the long term. In addition, the valuation is no longer expensive, which makes the risk-reward profile attractive. We upgrade our rating to BUY on the stock, with a rolled forward target price of Rs. 1,692 based on 22x FY25E adjusted EPS.

CMP: Rs. 1,525 (as on 20.01.2023)            

Target Price: Rs. 1,692

Analyst: Vincent K.A

Geojit Financial Services Ltd.


For Disclosures and Disclaimers: Infosys Ltd –

HDFC Bank Ltd, incorporated in August 1994, provides corporate banking and custodial services, and is also involved in treasury and capital markets. In addition, it offers project advisory services and capital market products, including GDR and currency bonds.

During the quarter(Q3FY23), interest income grew 9.9% QoQ to Rs. 45,002cr, driven by growth in interest on advances. Interest expenses rose 12.0% QoQ to Rs. 20,505cr. Consequently, NII rose 8.3% QoQ to Rs. 24,497cr. NIM was flat QoQ and YoY at 4.3%. Opex increased 10.6% QoQ due to accelerated branch expansion and increased employee spends, partly offset by other income, which grew 10.5% QoQ due to higher fee and commission income. Pre-provisioning profit came in at Rs. 5,567cr (up 7.8% QoQ). Provisions decreased 13.8% QoQ to Rs. 3,244cr and credit cost improved to 0.74% (vs. 0.87% in Q2FY23). Subsequently, net profit rose 14.1% QoQ to Rs. 12,698cr.

Advances grew 1.8% QoQ and 19.5% YoY to Rs. 1,506,809cr, driven by strong growth momentum in retail loans and commercial and rural banking. Deposits grew 3.6% QoQ and 19.9% YoY to Rs. 1,733,204cr. However, CASA ratio shrank 100bps QoQ to 44.0%, owing to a shift in deposits from SA to FDs, with an increase in interest rates. Gross non-performing assets (GNPA) came in at Rs. 18,764cr (up 2.5% QoQ and 17.2% YoY). GNPA/NNPA ratios were stable at 1.23%/0.33%, respectively. The provision coverage ratio stood at 73.0%. The capital adequacy ratio was 19.4% and the Tier-I ratio was 17.2%, well above the regulatory requirements. HDFC Bank opened 684 new branches in Q3FY23, taking the total branch count to 7,183 (1,404 new branches YoY). The management expects healthy credit demand from NBFCs, telecom, PSU, and infrastructure segments in the near term.

We expect robust growth in advances, driven by sustained demand from commercial, and rural banking as well as from retail segment while deposits to remain healthy on favourable CASA mix. Rising interest rates and higher retail loan growth would continue to support NIM despite rising cost of funds. Meanwhile, merger related overhangs should also ease as it nears completion by Q1/Q2FY24. Steady asset quality, diversified loan portfolio, and financial prudence will remain key positives for the stock. We reiterate our BUY rating on the stock, with a rolled forward target price of Rs. 1,890 based on 2.9x FY25E BVPS.

CMP: Rs. 1,661 (as on 20.01.2023)              

Target Price: Rs. 1,890

Analyst: Yadhu Ramachandran

Geojit Financial Services Ltd.


For Disclosures and Disclaimers: HDFC Bank Ltd –

Avenue Supermarts Ltd (DMart) owns & operates India’s most profitable supermarket chain, DMart. It provides products like food, non-food (FMCG), general merchandise & apparel through 306 stores (total 12.6mn sq. ft).

DMart reported healthy revenue growth of 25% YoY, aided by store additions in recent quarters and higher prices. DMart opened four new stores in the quarter (22 stores in 9MFY23), which will aid in the future growth when the footfall increases. DMart has a strong focus on improving its E-Com business channel ‘DMart Ready,’ and added four more cities in the quarter, making it present in a total of 22 cities across India. The company is in the process of opening a pharmacy shop-in-shop through its subsidiary (Reflect Healthcare and Retail Private Limited), in one store. Normalisation of the economy will increase footfall going forward, expect standalone revenue CAGR of 34% over FY22-24E, supported by strong store additions (85 stores in the last 24 months).

Gross margin declined to 14.3% from 14.9% YoY (14.5%QoQ) due to a deterioration in the product mix. Due to inflationary pressure, FMCG and staple segment continued to outperform the non-FMCG and discretionary higher margin product segments. EBITDA margin declined by 100bps YoY (maintained at 8.6% sequentially) due to lower gross margin and higher operational expenses. The discretionary mix (general merchandise & apparels) is recovering but is still below the pre-covid levels due to continued elevated inflation. The product mix is expected to improve in the coming quarters as the inflation started to moderate in the recent months, which will support margin improvement.

The normalization of the economy is supporting improvements in footfalls, and we expect DMart to benefit from its aggressive store additions in the recent years. DMart has strong recovery potential given its healthy balance sheet with no debt and strong operational efficiency. Strong store additions and higher sales values will aid strong revenue growth, while moderating inflation will improve discretionary demand and margins. We reduced our target price to Rs. 4,445 by valuing at 68x on FY25 EPS (earlier Rs.4,795) factoring in current margin pressure but, maintain Buy rating due to healthy store additions and topline growth.

CMP: Rs. 3,514 (as on 20.01.2023)             

Target Price: Rs. 4,445

Analyst:  Vincent KA

Geojit Financial Services Ltd.


For Disclosures and Disclaimers: Avenue Supermarts Ltd –

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