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Maintain 'hold' on TCS - Geojit BNP Paribas Financial Services
Posted On : 2013-03-13 20:31:16( TIMEZONE : IST )
- Take away from the analysts meet hosted by the company recently.
- The management remains confident of higher USD revenue growth in FY14 than in FY13. Margins are expected to be relatively stable.
- The company is expected to end FY13 in line with its target set at the start of the year (the target was to achieve higher than industry growth.
- It seems that the company is on track for 3.0- 3.5% qoq constant currency revenue growth in 4QFY13, similar to that in 3Q. After adjusting for cross currency movement, USD revenue growth is expected to be 3.6% qoq.
- There could also be a USD charge of 30 million for the settlement of a US class action law suit with ex-employees, which could impact margins by about 100 bps.
- Management noted improved client willingness to invest in IT and stable pricing but viewed that it was too early to judge whether the intended spending would actually come through.
- The company basically agrees with NASSCOM's view of industrial growth at 12-14% for FY14.
- It also expects that 1H would be better than 2H, the year to follow the usual seasonal patterns.
- Management sees larger and more complex outsourcing deals from Europe and the possibility of discretionary spending recovering in the US, which could lead to increased shorter term deals from that geography.
- Barring telecom and hi-tech, the company sees healthy demand from other verticals.
- Management noted it will continue to make investments in Europe and in specific service lines to expand them to critical mass. It also felt an improving political environment in the US could ease the pressure on getting employee visas.
- The company is yet to decide on wage hikes for FY14.
- TCS is a solid company and it is expected that it could outpace industry growth in FY14. However, it seems that much of the growth potential is already priced in the stock value and hence, 'hold' rating is maintained.
- The stock may witness better than expected performance if the rupee weakness is sustained against the US dollar or the macro environment improves better than the expected.
