2 IT Stocks To Buy For Good Returns In 1-Year

Information Technology (IT) stocks are gaining more attention as of now as major IT companies have recently declared their Q3FY22 results. As a result, the brokerage company ICICI Direct has placed a buy call on the shares of Infosys and Tata Consultancy Services (TCS). The brokerage has set a target price of Rs. 2300 for Infosys, and a target price of Rs. 4600 for TCS. According to the brokerage, these stocks are anticipated to reach their target price in one year.

Infosys

The brokerage has said in its research report that "The company's share price has grown by ~4.4x over the past five years (from ~Rs 424 in January 2017 to ~Rs 1,897 levels in January 2022). We continue to remain positive and retain our BUY rating on the stock. We value Infosys at Rs. 2,300 i.e. 32x P/E on FY24E EPS."

Key triggers for future price performance according to the brokerage

• Differentiated digital and cloud capabilities to drive growth.
• Growth remained broad-based and deal momentum robust, with digital transformation rapidly scaling across verticals and regions.
• Infosys to register industry-leading revenue growth (14.9% CAGR in FY21- 24E).
• Healthy cash generation, robust dividend distribution & buyback.

Q3FY22 results of Infosys according to ICICI Direct

• Infosys reported robust Q3FY22 results in revenue terms.
• Digital revenues rose 41.2% YoY. It now contributes 58.5% of revenues.
• Margins were resilient at 23.5% despite supply-side challenges.
• Revised revenue guidance upwards from 16.5-17.5% earlier to 19.5-20.0% for FY22E and maintained margin guidance at 22-24% for FY22E.

Tata Consultancy Services (TCS)

According to ICICI Direct "TCS' share price has grown by ~3.9x over the past five years (from ~Rs 1,018 in January 2017 to ~Rs 3,965 levels in January 2022). We continue to remain positive and retain our BUY rating on the stock. We value TCS at Rs 4,600 i.e. 34x P/E on FY24E EPS."

Key triggers for future price performance according to the brokerage

• TCS is a key beneficiary of multi-year growth (15-20%) in digital technologies.
• Increase in outsourcing in Europe, vendor consolidation and deal pipeline leading to revenue CAGR of 13% over FY21-24E.
• We expect margins to be under pressure, at least in FY23E, before stabilising at 25.8% in FY24E, resulting in margin improvement of only 50 bps in FY21-24E.
• Double-digit return ratios, strong cash generation and healthy payout.

Q3FY22 results of TCS according to ICICI Direct

• TCS reported Q2FY22 results.
• US$ revenues grew 3% QoQ to $6,333 million, up 15.4% YoY in CC terms.
• EBIT margins declined 60 bps QoQ to 25.0%.
• The company's deal pipeline continues to be healthy at US$7.6 billion.

Disclaimer

The above stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.