Tech-hungry India has a number of interesting ideas in the IT and consulting market, with giants Infosys (Infosys Stock Quote, Chart, News NYSE:INFY) and Accenture (Accenture Stock Quote, Chart, News NYSE:ACN) being two to watch, says Darren Sissons, vice president and partner at Campbell, Lee and Ross, who thinks Accenture might be the better buy right now.
“We actually owned Infosys for a couple of years and did very well with it,” said Sissons, speaking on BNN Bloomberg on Friday. “I think it’s a good company. It’s well run, a very strong balance sheet, the dividend grows — I have no problem with the company.”
“However, we did sell it and we upgraded to Accenture. I think Accenture has a broader offering. It’s effectively the same kind of company — it does a lot of outsourcing — but it also has media and it has government portions. So I think that is the better company,” Sissons said, “but if you wanted to buy Infosys, at these levels, I think it’s a little rich given the run up we’ve had, [but] it’s a high-quality company and definitely worth owning.”
Infosys, India’s second-largest IT company after Tata, has had a banner 2020 so far with its share price now up 46 per cent, which is on top of a dividend yield currently at 1.8 per cent.
Last month, Infosys delivered quarterly numbers for its second quarter 2020 that were strong considering COVID-19-impacted conditions, showing revenue up 6.1 per cent sequentially and 3.2 per cent year-over-year to $3.312 billion, while operating profit grew by 21 per cent year-over-year to $840 million and EPS grew by 15 per cent to $0.15 per share.
Management said the company’s growth should continue going forward, especially once the COVID-19 pandemic has run its course. The company calls for fiscal 2021 revenue to grow by between two and three per cent and for operating margins to hit between 23 and 24 per cent.
“Our second quarter performance is a clear reflection of our ability to help clients on their digital transformation journeys. Our digital and cloud capabilities combined with intense client relevance are helping us achieve differentiated results in the market as is visible in 2.2% year on year overall revenue growth and 25.4 per cent growth from digital offerings, which now are at 47.3% of revenues,” said Salil Parekh, CEO, in a press release.
India has been a tech market growth story for years now, with over 700 million people online and virtually all of the global tech giants from Facebook to Microsoft and Apple establishing themselves in the still-growing market. Earlier this year, for example, Google announced it would be spending $10 billion over the next five to seven years in developing its presence in India’s growing digital economy.
Parekh says Infosys will soon be deriving 50 per cent of its revenue from digital services.
“What we’re really seeing is much more work on digital transformation. We reported more than 25 per cent growth in digital in the previous quarter and we see that traction continuing. We see about half of our companies now focused on digital and we see more and more work in the cloud space and we launched our own cloud brand Infosys Cobalt and that should continue with much more refinement in that direction,” said Parekh, in a CNBC TV18 interview last month.
But Accenture has also had an upbeat 2020, with its share price gaining 16 per cent year-to-date and up 124 per cent over the past five years.
Accenture, which has an even larger 70-per-cent of revenue from digital services, last reported quarterly earnings in September where the company saw revenue fall two per cent to $10.84 billion, with predictions that single or low double-digit growth will return by the second half of 2021. Net income for the company’s fiscal fourth was $1.31 billion compared with $1.15 billion a year earlier.
“Our ability to pivot rapidly to meet the needs of our clients and new ways of operating is reflected in our record new bookings of $50 billion for fiscal 2020,” said Accenture CEO Julie Sweet in a press release. “We also continued to deliver revenue growth ahead of the market as well as strong profitability and superior cash flow. As we turn the page to fiscal 2021, we are better positioned than ever to continue gaining market share and delivering tangible value for our clients and shared success for all our stakeholders.”
Sissons says the pandemic has created a potential buying opportunity for investors looking to get into the India tech market.
“In terms of India itself I think it has a lot of good opportunities ahead. I think it’s very different than China in terms of an emerging market opportunity,” Sissons said. “It’s a growing market [where], obviously, near term, COVID is providing an opportunity for entry levels. Longer term, it’s a structural growth market with looking at.”