TCS - Q4FY13 Result Update - SPA

TCS revenue grew 3.1% sequentially to $3,040mn (SPAe: $3,030mn) driven by 4.4% volume growth. The EBIT margins declined by 73bps to 26.5% on the back of currency headwinds and settlement cost of INR 660mn. The management hinted towards a stronger FY14 over FY13 on the back of positive client spends and feedback. The company also guided towards a revenue growth higher than Nasscom guidance in FY14. We have rolled over to FY15 numbers and taking the price run-up into cognizance continue to recommend HOLD with a Target Price of INR 1,370 at 16.5x FY15E earnings.

- TCS reported a sequential revenue growth of 3.1% to $3,040mn (SPAe: $3,030mn) in-line with our expectations.

- Operating margins at 26.5% declined sequential by 73bps on the back of (i) Currency Headwinds (-64bps) (ii) Settlement of INR 660mn offset by (iii) productivity gains.

- The company added 52 new clients, highest since Q4FY08. The >$50mn contributing clients improved further to 48, 12% up YoY.

- Management has hinted towards a stronger FY14 and expects to beat Nasscom guidance for FY14 (12% - 14%).

Outlook and Recommendation

We believe in the superior execution skill of the company and have factored a USD revenue CAGR of 16.2% over FY13-15E (INR revenue CAGR of 10%). We expect margins to move in a narrow range of 27.4% to 26.9% for FY14E and FY15E respectively, resulting in an EPS CAGR of 8.1%. We expect company to remain a bellwether for the sector and continue to get premium valuation, however due to slower EPS growth on the back of INR appreciation, we recommend HOLD with a TP of INR 1,370.0 at 16.5x FY15E earnings.

Source : Equity Bulls

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