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Weak Rupee – Buy IT – Lehman Brothers

May 28, 2008

Lehman Brothers has been at the fore-front in covering the Indian IT Stocks. They were the first one to downgrade last October and subsequently after the blood bath upgraded tier-I Indian IT stocks. Just a while ago they have reiterated a BUY on Infosys, Wipro and TCS due to the weakness in rupee which is probably going to last longer than expected.

Infosys Technologies:
Lehman Brothers’ economics team expects the FY09E US$-INR average exchange rate to be 41.2 (3% depreciation from the average rate in FY08), against the earlier forecast of 39.4. Lehman raised EPS forecast for FY09E to INR 98.6 from
INR 94.2.

Revised FY10E EPS to INR108.9 from INR101.8, due mainly to tax rate estimates for FY10 going down to 18% from 20% before. The change in tax rate is due to extension of tax holiday by one more year by the Government of India recently. 12-month DCF-based price target is INR2,025, against INR1,870 before.

Wipro:
Revised FY09E EPS estimates to INR 28.1 from INR27.1. Also revise FY10E EPS estimates to INR32.4 from INR31.6 before. New 12-month DCF-based price target is INR 550 as against INR 539 before.

TCS:
Revised FY09E EPS estimates to INR 62.9 from INR 60.5. Also revise FY10E EPS estimates to INR 72.2 from INR 70.3 before. New 12-month DCF-based price target is INR 1,226 as against INR 1,161 before.

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