2026-03-19 02:11:01
Latest Post
HDFC Bank Chairman Atanu Chakraborty Resigns, Keki Mistry Named Interim Part-time Chairman
CWD Ltd receives order worth Rs. 45.24 crores
Belrise Industries announces strategic acquisition of Chester Hall Precision Engineering, United Kingdom
Mobavenue AI Tech Limited Announces Board Approval for Stock Split of Equity Shares
HCLTech named as one of the World's Most Ethical Companies® by Ethisphere for third consecutive year
Research
TCS - Excellent execution continues but valuations limit upside, Downgrade to HOLD - Religare
Posted On : 2012-07-22 00:24:42( TIMEZONE : IST )
We downgrade TCS to HOLD with a March-13 price target of Rs1,325. While TCS delivered another healthy quarter (4% US$CC growth and 5% volume growth), we believe that heightened street expectations will be tough to beat in the current weak demand environment. Our estimates factor in 14% US$ revenue CAGR over FY12-14 and we do not see upsides unless macro improves significantly. Even with a 20% P/E premium on Infosys, upsides are limited on TCS leading to our downgrade.
- Executing well in a tough environment: TCS delivered another healthy quarter with a 4% CC growth (3% in US$ terms), broadly in-line with expectations. Volumes grew by 5.3% ahead of expectations, while pricing declined by 1%. Growth was broad-based with Telecom/BFSI/Retail showing 7.6%/5.3%/8.3% CC QoQ. Geographically Americas and UK grew by 4%/17% in CC terms. Margins were down only 20bps to 27.5% in-line with expectations, despite wage hikes and higher visa costs. Overall net profit at Rs32.9bn was slightly ahead of expectations on lower forex losses.
- Expect to deliver industry leading growth: While the management did indicate a weak macro environment, they continue to remain bullish on the growth prospects for the company. TCS sounded confident of visibility on client budgets. We expect TCS to continue delivering industry leading growth and build in 14% CAGR over FY12-14 ahead of other large cap peers. Margins should hold up and there is little reason to expect slip-up in the near-term given strong execution track record.
- Implications for the sector: Growth divergence between TCS and other large peers continues and we see the same to continue at least near-term. However the key worry remains a tough demand macro environment - Infosys saw sharp pricing decline in 1QFY13 and there is a legitimate concern that this could hit peers with a 1-2 quarter lag. As such, we would prefer to stay cautious on the sector. On TCS specifically, valuations leave little room for upside in our view.
