Infosys at highest-ever discount to TCS, has 22% upside: Motilal Oswal

MUMBAI: IT sector bellwether Infosys's stock trades at a highest-ever 21% discount to shares of rival Tata Consultancy Services, and offers a 12-month upside of 22%, said a recent report by Motilal Oswal Financial Services. Such discounts may not sustain for long despite Infosys having lower growth and larger unused cash reserves than TCS, the report said.

"Room for upside is higher at Infosys than at TCS, though in the near-term, pressures from visa issues, global news and negative rumors around top-management exits may keep upside under check," said analyst Ashish Chopra in the report.

Investors have shunned Infosys shares ever since the company posted dismal earnings for the January-March quarter and gave a yearly revenue guidance that was lower than that of the IT services industry.

Shares of Infosys have declined 14% since the quarterly results announcement on April 13. In comparison, TCS stock has gained 8% in the period.

However, the significant fall in Infosys stock versus TCS has brought down valuation multiples to historic lows, and warrant a re-look at Infosys stock's performance over the coming year, analysts said.

"At 14.8x FY13E earnings, Infosys' multiple is near-bottom. Even from an FCF standpoint, Infosys' EV/FCF multiple in FY12 is 58% of TCS', the lowest ever in history," Motilal Oswal analyst Chopra added in the report.

As on 1400 hours on May 18, Infosys shares were trading at Rs 2,338 on NSE, 1.4% down. TCS was trading at Rs 1,215, 0.4% down.