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Research
Buy TCS - Dolat Capital
Posted On : 2012-04-24 10:59:45( TIMEZONE : IST )
View: Post the earnings we turn incrementally positive on TCS in view of its confident stance on the business outlook and currency & utilization tailwinds which will ensure sustained profitability in FY13. We maintain TCS as our Top Pick among Tier I IT space and expect it maintain its outperformance over peers in the near term (Target price of Rs.1370 valued at 18x of its FY14E earnings).
TCS's Q4 FY12 operating results were broadly inline with Revenue/EBIT growth of 0.4%/-5% QoQ as anticipated owing to weaker fx realizations. Revenue grew 2.3% in Constant currency terms, driven by a 3.2% volume growth and realization decline of 97bps.
TCS managed broad-based growth across geographies, except for the continental Europe (down 6% QoQ). Vertical wise, company has a mixed performance for the quarter and expects Telecom to do well in FY13.
The company has announced average salary hike of 8%/2-4%/6% for its employees in India/Developed/Developing markets. It has over 45,000 fresher offers due in FY13.
PAT grew by 1.6% QoQ to Rs.29bn ahead of our estimates owing to higher other income (Rs.2bn gain more than expectations).
The company is witnessing higher demand for its service delivery model and better/faster closure versus the previous quarter. Thus; we have turned incrementally positive on TCS in view of its strong business growth outlook based on robust growth expectancy for outsourcing and quicker decision making & rampups among its client portfolio.
Financial Highlights
- Revenue grew 2.4% in dollar terms (Constant currency growth of 2.3%), driven by a 3.2% volume growth and realization decline of 97bps. Unfavorable currency impact of 187 bps resulted in 0.4% growth in the reported currency at Rs.132 bn.
- Consistent deal wins and a healthy pipeline with 42 new client addition and 6 large deals signing spread across multiple verticals.
- EBIT declined by 4.9% QoQ at Rs.36.7bn (EBIT margin down 155bps QoQ) on higher SG&A (impact of 120 bps) and weaker realizations (impact of 71bps).
- Gross utilisation reached 80.6% with a strong headcount gross/net addition of 19,156/11,832. Attrition dropped to 11.05% in IT Services segment.
- PAT grew 1.6% QoQ to Rs.29.6bn — ahead of our estimate of Rs.28.1bn owing to net other income earned at Rs.1bn as against loss of Rs.1bn in Q3.
