TCS - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, TCS reported yet another healthy set of results, outperforming the street as well as our expectations on the revenue as well as profit front. The most remarkable highlight of the result was the 5.0% qoq volume growth. TCS closed 11 large deals during 2QFY2013. These deals span industry segments as well as geographies. The management sounded confident of growing higher than the industry. TCS remains one of the defensive bets in the IT pack. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 2QFY2013, TCS posted revenue of US$2,853mn, up 4.6% qoq, on the back of volume growth of 5.0% qoq. TCS's EBITDA and EBIT margin declined by 71bp and 75bp qoq to 28.4% and 26.8%, respectively, due to: 1) few transformation projects getting stared which led to onsite effort shift and one-time costs and 2) change in business mix as incremental growth came in from ramp ups in projects from emerging markets where price points are slightly lower from developed markets.

Outlook and valuation: The management sounded confident of surpassing Nasscom's industry growth guidance of 11-14% yoy for FY2013 in constant currency (CC) terms, indicating that despite challenges in the macro environment, the deal pipeline would remain healthy. The management indicated that it is on track with its guidance to hire 50,000 gross employees in FY2013, which gives us confidence about the demand environment being witnessed by the company. Also, the company has set a campus hiring target of 25,000 people for FY2014, out of which ~12,000 offers have already been given despite an uncertain environment. Two continuous quarters of 5%+ volume growth, 11 large deals wins, and the management's commentary stating discretionary spending coming back bode well for the company. Over FY2012-14E, we expect TCS's revenue to post a 12.8% (USD terms) and 17.3% (INR terms) CAGR. On the EBITDA and PAT fronts, we expect the company to post a 16.5% and 18.5% CAGR over FY2012-14E, respectively. At the current market price of Rs.1,290, the stock is trading at 16.9x FY2014E EPS. We value TCS at 18.5x FY2014E EPS of Rs.76.2 with a target price of Rs.1,410 and maintain Accumulate on the stock.

Source : Equity Bulls

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