“TCS came out with their results which were inline with our expectation both on the topline as well as bottomline front. Revenues came at Rs.13259.3cr (a growth of 0.4% QoQ) while net profit came at Rs.2894.9cr (up by 3.3% QoQ). Volume growth was healthy at 3.2% which is similar to what was achieved in the previous quarter. Constant currency realization saw improvement close to 1% in Q3; however the appreciating rupee had a negative impact of ~1.9%.”
“Though TCS saw constant currency realization improve by close to 1% in Q3, the appreciating rupee had a negative impact of ~1.9%. EBIT thus declined by ~155bps. A lower utilisation of 80.6% v/s 82.0% in Q3 also impacted margins. With rampups expected in projects, the utilisation rate is expected to improve in coming quarters. Though TCS witnessed healthy growth in most of its verticals, BFSI however remained largely flat in Q4. The management attributes this to delay in a few discretionary projects that were expected to kick in. They however allayed fears of any down-turn in this segment by making it clear that they have already started to see ramp-ups in ongoing projects and the delayed deals is also expected to get started soon. Deal signing momentum in BFSI also remained strong with 3 deals signed in Q3 and hence they believe that there is no major scare in this segment and a healthy growth can definitely expect in FY13E. The management also indicated that the worst is over for the ailing telecom vertical. Their telecom deal basket has improved considerably in the last two quarters and hence going ahead it will also see healthy growth.”
“Geographically, both US, Europe is expected to do well in FY13E. The TCS management unlike the Infosys management executed confidence and indicated that they will do better than the 11- 14% industry growth given by NASSCOM. This came as a huge sigh of relief for the market and vindicated our belief that Infosys is suffering from ‘portfolio issues’ and the ills that are plaguing Infy currently cannot be generalized to the sector as a whole. The TCS management further indicated that a number of deals are getting ramped-up and they have infact not seen any ramp down so far in their deal portfolio. Their client mining also remained strong with their $50 and $100mn clients growing by 4 each in Q3.”
“We believe the ‘Infy-TCS valuation debate’ is over atleast for now as TCS has marched ahead of Infy with its inline Q4 result. The fact that TCS expects their revenue to be better than the industry compared to Infy’s lower than the industry makes us believe that the valuation difference is here to stay for some time. It was also a relief to see the management much more confident than the last quarter. Therefore, though we maintain our PE multiple of 21x for TCS for its FY13E EPS, we however reduce our profit estimates, as we believe it will have to endure higher cost pressure compared to our earlier estimate. We thereby reduce our target price to Rs.1290 from Rs.1340 per share and reduce our ‘BUY’ call to ‘HOLD’ on the stock. We also introduce FY14E estimates,” says Arihant capital markets research report.
No comments:
Post a Comment