Sell TCS - TP Rs.1150 - Emkay

Sell, Target Price Rs 1,150 No room for disappointments

TCS has done well , but premium valuations leave no room for disappointment: TCS currently trades at ~19.5x/17.6x FY13/14 earnings with sector premium and peer premium at all time highs. Valuations leave no room for disappointments in our view.

Gone from strength to strength over FY09-12, however weakness in key verticals will limit surprises ahead: TCS has executed well over FY09-12 fortifying itself as the premier IT Svcs offshore vendor however weakness in BFSI ( 43% of revenues for TCS) as also confirmed by CTSH's cut in CY12 guidance will catch up with TCS in our view.

Exposure to BFSI highest amongst peers: TCS derives ~43% of revenues from the Financial Services vertical. Although management remains confident of growth in Financial Services from ramp ups in some of the recent deal wins, we see risks from the weakness in the financial services as discretionary spending here is ramping up at a smaller place.

Near term catalyst and earnings performance: We believe that a quarterly earnings disappointment might weigh in heavily in case of TCS given premium valuations (18.9x/16.8x FY13/14E P/E) leaving no room for negative surprises.

Source : Equity Bulls

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