Buy TCS; target Rs 1276

"Tata Consultancy Services (TCS), reported a modest set of numbers (for 4QFY2012), in-line with street’s expectations on the revenue and operating fronts. Management sounded confident of growing higher than the industry and expects FY2013 to be a normal year (as against Infosys, the guidance numbers of which indicated growth to be higher in 2HFY2012). Also, management indicated that revenue from BFSI will pick up from 1QFY2013 and signed three of the six large deals in the BFSI industry during the quarter. TCS continues to remain our preferred pick along with HCL Tech in the IT pack."

"For 4QFY2012, TCS posted revenue of US$2,648mn, up 2.4% qoq, on the back of volume growth of 3.2% qoq. However, the company’s pricing declined by 1.9% qoq. In INR terms, revenue came in at Rs 13,259cr, up 0.4% qoq. EBITDA and EBIT margin declined by 149bp qoq and 155bp qoq to 29.5% and 27.7%, respectively, due to increased SG&A expenses and INR appreciation against USD, which overshadowed the positive impact due to higher productivity. PAT for the quarter came in at Rs 2,932cr, aided by other income of Rs 108cr vs. Rs 92cr loss in 3QFY2012."

"Management indicated that it will hire 50,000 gross employees in FY2013 and has already extended offers to 43,600 campus graduates, which is a healthy number and gives confidence about the demand environment being witnessed by the company. TCS bagged six large deals in 4QFY2012. Management sounded confident of surpassing Nasscom’s industry growth guidance of 11-14% yoy for FY2013. Over FY2012-14E, we expect TCS’s revenue to post a 15.4% (USD terms) and 16.5% (INR terms) CAGR. The company has announced wage hike of 6-8% for offshore employees and 2-4% for onsite employees. On the EBITDA and PAT front, we expect the company to post 14.9% and 14.2% CAGR over FY2012-14E. At the CMP, the stock is trading at 14.9x FY2014E EPS. We value TCS at 18x FY2014E EPS of Rs 70.9 with a target price of Rs 1,276 and maintain our Buy rating on the stock," says Angel Broking research report.