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TMT stocks: have they bottomed out? - Views on News from Equitymaster
 
 
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  • May 11, 2000

    TMT stocks: have they bottomed out?

    The world over TMT stocks (Technology, Media, Telecom) have been the centre of a massive debate because of their seemingly unrealistic valuations and the resultant stock price volatility. Most agree that many of these stocks were overvalued and therefore a correction was imminent. Well a correction has taken place in the last couple of months, but now the debate actually is 'Have the TMT stocks really bottomed out? If yes, then is it time to relook at them.

    We don't know the answer to this. But, at equitymaster we did a small study on leading Indian TMT stocks to understand what's happening.

    TURNOVER
    (Rs m) FY96 FY97 FY98 FY99 FY00 CAGR
    Infosys 886 1,392 2,577 5,089 8,823 77.6%
    Satyam 520 893 1,785 3,781 6,771 90.0%
    NIIT 1,497 2,284 3,252 4,576 5,813 40.4%
    Wipro 11,611 12,630 14,177 18,308 22,859 18.5%
    Zee 891 893 1,734 2,262 4,759 52.0%
    VSNL 44,318 52,089 61,251 68,315 70,241 12.2%

    NET PROFIT
    (Rs m) FY96 FY97 FY98 FY99 FY00 CAGR
    Infosys 210 337 597 1,317 2,860 92.1%
    Satyam 135 187 381 720 1,349 77.8%
    NIIT 336 481 674 1,084 1,428 43.6%
    Wipro 529 573 1,072 1,694 3,006 54.4%
    Zee 230 281 423 601 2,671 84.6%
    VSNL 4,251 5,257 9,974 13,761 13,119 32.5%

    Looking at their turnover and profit growth over a period of last five years, as also their attractive earning per share (EPS) there is no doubt that the TMT stocks deserve premium valuations. But how much premium, that is the question.

    As a result of the recent correction that has taken place on the bourses, all these companies trade at a huge discount to their 52 week highs. Their P/E ratios have come down drastically from their peaks.

    Companies EPS P/E P/E based
    on 52 wh
    Infosys 86.5 91.6 149.2
    Satyam 51.8 64.7 136.6
    NIIT 36.9 51.7 99.0
    Wipro 65.6 45.6 146.2
    Zee 143.1 4.9 10.8
    VSNL 138.1 7.9 22.8

    But, and it is a big but, looking at the flip side all these companies trade at a huge premium to their 52 week lows.

    Companies Price Discount
    to 52wh
    Premium
    to 52wl
    Infosys 7,925 -39% 418%
    Satyam 3,352 -53% 481%
    NIIT 1,912 -48% 31%
    Wipro 2,990 -69% 276%
    Zee 705 -54% 418%
    VSNL 1,085 -66% 37%

    So you try and figure out which side the dice is loaded, and if you do find the answer please let us know.

     

     

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