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Research
TCS - Another quarter of strong performance - Antique
Posted On : 2012-07-22 00:24:33( TIMEZONE : IST )
Tata Consultancy Services Ltd. (TCS) reported yet another strong quarter with revenue growth of 3% QoQ. Volume growth came in at 5% QoQ vs. 2.8% QoQ reported by Infosys. Key highlight during the quarter was strong growth in all key verticals including BFSI (5% QoQ). With earnings CAGR likely to be ahead of peers, we believe premium multiples are sustainable. We tweak our estimates to factor in INR depreciation and raise target price marginally to INR1,390. Reiterate BUY.
Strong volume growth
TCS 1Q revenues (in USD) grew by 3% QoQ, in line with our estimates. Volume growth stood at ~5% vs. our expectation of 4% growth. EBIT margins though declined by 19bps vs. our expectation of 80bps expansion. Margin decline was led by wage hikes and decline in price realisation. PAT grew 12% QoQ, 6.5% ahead of our estimates and was led by higher forex gains.
All key verticals showed strength; strong improvement in client mining
One of the key highlights during the quarter has been strong growth across all key verticals. BFSI which contributes 43% to revenues and has been a key area of concern, grew by 5% QoQ. Telecom as highlighted by management grew by 6% QoQ. TCS continues to demonstrate strong improvement in client mining. All key client buckets i.e., USD5m-50m showed improvement on a QoQ basis.
Management reiterates outlook of exceeding Nasscom guidance
Management commentary remained bullish and reiterated its outlook of growing faster than Nasscom guidance (11-14% YoY). It expects quarterly growth to be balanced across the four quarters.
Valuation and outlook
Stock trades at 16x FY14e vs. 12x FY14e for Infosys. Our target multiples are at 18x FY14e at 20% premium to target multiples for Infosys. With nearly eight quarter of revenue outperformance vs. Infosys and likely strong earnings CAGR of 19% vs. peers (12-15%), we believe premium valuations are sustainable. We reiterate a BUY with a target price of INR1,390, which provides an upside of 13% at current levels.
