Covid-19 has not only accelerated the technological shift happening in the business world but also upended the business models of traditional sectors of the economy, most prominently retail, leisure and hospitality, commercial real estate, aviation, automobile, and supply-chain. The companies across the business landscape are resorting to technology to shore up their business
continuity plans, to rationalize their costs, and for their operational resilience efforts. On the other hand, the software and information-technology sector is among those few sectors which got a boost from the pandemic and resultant enhanced technological spending on the adoption of the latest technologies such as cloud adoption, Cybersecurity, automation, and process digitization.
I am listing the below three Indian IT stocks which benefited from the accelerated trend of remote work and increased digitization of the workplace. These companies are attractive from point of view of strong operating margin, carrying low debt, offering good dividend yield, pursuing the organic and inorganic route to achieve growth.
1. TCS (NSE: TCS): TCS is the biggest Indian IT company engaged in the business of technology consultancy, outsourcing, and digital services. Segment-wise, the company is focused on financial services (40%), retail and consumer services (16%), communications and media (17%).1 Geographically, the company drives 83% of its revenue from North America and European markets1. During the last fiscal year ending 31-March, 2021, the company clocked ₹ 1,673 billion in revenue with an operating margin of 26%. During this period, the company generated EPS of ₹86.71 and a return on equity of 38.17%. TCS has a market capitalization of ₹ 12 trillion and trades at a P/E of 35.69. 2 Over the last 5years, this stock has returned 140% against the market index return of 87% to its investors. The stock is still attractive from the point of dividend yield of 1.21%, very low debt level, and strong balance sheet.
2. Infosys Limited (NSE: INFY): Infosys is the second-largest Indian IT company engaged in technology consulting, outsourcing, and digital services. The biggest revenue drivers for the company are banking and financial services (40%), retail and consumer services (16%), and communications and media (17%). Geographically, the company drives 83% of its revenue from North America and European markets. The company is investing heavily to offer services related to next-generation technologies such as 5G, autonomous tech, Internet of Things, and Blockchain. During the last fiscal year ending 31-March-2021, the company clocked ₹ 1,027 billion in revenue with an operating margin of 26% and diluted EPS of ₹ 45.521. Infosys has a market capitalization of ₹ 7.02 trillion and trades at a trailing P/E of 34.302. Over the last 5years, this stock has returned 211% to its investors and is still attractive from point of view of offering a good dividend yield (1.63%), a virtually debt-free, active sharebuyback policy, and capital appreciation potential.
3. Wipro Limited (NSE: WIPRO): Wipro is the third-biggest Indian company in the IT services industry. The stock has outperformed since the appointment of the new CEO, Thierry Delaporte in July 2020. The company is focused on financial services (31%), consumer retail (16%), and the health sector (14%) to derive growth. In the fiscal year ending 31-March-2021, the company reported net sales of ₹ 643 billion, operating margin of 20%, and diluted EPS of ₹ 19.07.1 An investment in the stock of ₹ 3.27 trillion market-cap company returned 195% to its investors in the last five years.2 As compared to TCS and Infosys, this stock is relatively trading cheaper at a forward P/E of 30.59
