Accumulate TCS - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, TCS reported yet another healthy quarterly result, outperforming street as well as our expectations on the revenue as well as profit front. The most remarkable highlight of the result was 5.3% qoq volume growth. TCS's management, like Infosys, also said that unprecedented currency volatility continues to be a challenge in the short term, but it also continues to see good demand from global companies. Management sounded confident of growing higher than the industry. TCS remains one of the defensive bets in the IT pack. We recommend Accumulate on the stock.

Quarterly highlights: For 1QFY2013, TCS posted revenue of US$2,728mn, up 3.0% qoq, on the back of volume growth of 5.3% qoq. However, the company's pricing declined by 1.3% qoq. EBIT margin declined slightly by 20bp qoq to 27.5%, due to impact of wage hikes given during the quarter, the negative impact of which got absorbed by INR depreciation against USD.

Outlook and valuation: Management indicated that clients are aware of the challenging macro environment and have made plans to spend on IT considering all these challenges. Management sounded confident of surpassing Nasscom's industry growth guidance of 11-14% yoy for FY2013 in CC terms, indicating that despite challenges in the macro environment, the deal pipeline remains healthy. Post 1QFY2013, to achieve 13-14% USD revenue growth rate in reported currency, TCS requires a 3.2-4.0% CQGR over 2QFY2013-4QFY2013, which is on the aggressive side. Accordingly, we expect USD revenue to grow by 12.5% in FY2013, taking into account the unfavorable cross-currency environment. Over FY2012-14E, we expect TCS's revenue to post a 13.0% (USD terms) and 17.5% (INR terms) CAGR. On the EBITDA and PAT fronts, we expect the company to post a 16.7% and 15.6% CAGR over FY2012-14E, respectively. At the CMP, the stock is trading at 17.1x FY2014E EPS. We value TCS at 18x FY2014E EPS of Rs.72.4 with a target price of Rs.1,304 and recommend Accumulate on the stock, but we do not see any meaningful absolute upsides from current levels and see this stock as one of the defensive bets in the IT pack.

Source : Equity Bulls

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