Why IIFL’s Abhimanyu Sofat prefers Infosys to TCS

It is better to be with a leader like Infosys which on a valuation perspective is quite cheap compared to TCS, Abhimanyu Sofat, VP- Research, IIFL, tells ET Now.

Edited excerpts:


What do you make of UPL buying Arysta Lifescience for $4.2 billion. What does it mean for their market share globally, as also what it means for the stock which has underperformed over the last three months?

The deal is more or less as per expectations and the synergy benefit with the management I have been talking about is completely possible. There could be some initial hiccups. From a valuation perspective, the stock has corrected from a high of around Rs 900 to around Rs 550 odd. If there is any weakness in the stock because of this particular deal, one should look to accumulate it in terms of geographical strength as well as the crop mix. This particular deal is pretty interesting for UPL and equity element added at the international subsidiary level where a dilution will take place. Overall, it appears to be a decent deal for UPL and will help it gain a significant market share. The market share of UPL is going to be close to around 9% globally which is quite a decent number.

In Friday’s session, there was traction in Bajaj Finance, Bajaj Finserv. What would be a good strategy to approach the business -- buy a Bajaj Finance or a Bajaj Finserv or take exposure to all of the entities within the Bajaj Group by buying into Bajaj Holdings?

It is better to buy the company directly rather than routing your investment through Bajaj Holdings because typically when there is a bull market, the discount to the value of investment comes down to close to around 45% to 50% and in a bear market scenario that discount goes up to around 60-65%.

If you want to be in the financial space, Bajaj Finance is the right company to be in, considering that the growth opportunity there is best in terms of growth. Going forward, the cost of funds is also going to come down. Within the group, our preference should be for something like a Bajaj Finance, then Bajaj Finserv and then at number three Bajaj Auto. In case of Bajaj Auto, we feel most of the price cuts which they are doing at the entry level were not profitable businesses. They are selling some of these entry level bikes at some kind of a loss. We will be more bullish on Hero in the two-wheeler space.

From the NBFC space, what do you make of L&T Finance? Where does it stand within your pecking order?

It is more of a midcap kind of an NBFC. L&T Finance numbers were pretty good. The cost to income ratio could see a significant reduction in that as well as on the gross NPA levels. Also, one could see significant reductions happening. Overall, we would be positive on L&T Finance. However, right now, within the NBFC space, we are more focussed on the microfinance company where we see the earnings growth opportunity to be pretty robust over next three to four quarters.

We were discussing the IT sector a little while back. Now we have seen a slew of numbers come in from the IT space. Things are looking up for the business in a meaningful manner whether it comes to deal wins, or pricing of some of these deals. Look at Wipro’s earnings. While the other parameters looked lukewarm, the margin performance is fairly interesting to note. How do you review the earnings of all of the IT majors in lieu of what Wipro has also reported?

Wipro’s numbers were slightly better than expectation. However, the disappointment was that the Q2 guidance of 0.3 to 2.3% was below our expectations. If you look at the BFSI space, clearly Wipro has seen a lot of improvement over last six quarters with Q on Q growth for six quarters. So that is a positive. But with bankruptcy happening on the telecom space for two of its clients, plus the issue that it is grappling on the healthcare business, it is better to be with a leader like Infosys which on a valuation perspective is quite cheap compared to TCS.

There were lot of one-offs in Infosys results. Overall, we are positive on the result despite the market being a little bit negative. From our perspective, the pecking order should be Infosys, TCS and then Wipro.