TCS - 4QFY2013 Result Update - Angel Broking

For 4QFY2013, TCS reported in-line set of results with a strong volume growth of 4.4% qoq. What came as a disappointment was the quantum of fall in the operating margin. It fell by ~70bp qoq against our expectation of a fall of ~40bp. But what is a big positive is the Management's bullish commentary, coupled with the annual wage hike announcement, continued hiring guidance, and the fact that the Management expects FY2014 to be better than FY2013. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 4QFY2013, TCS posted a revenue of US$3,040mn, up 3.1% qoq. In INR terms, the revenue came in at Rs. 16,430cr, up 2.2% qoq. A large part of the revenue growth during the quarter was driven by India; and within India, by sale of equipment and software licenses. TCS' EBITDA and EBIT margins declined by 60bp and 73bp qoq to 28.4% and 26.5%, respectively, impacted by a one-time lawsuit settlement of ~US$30mn and a ~Rs. 100cr impact due to exchange rate fluctuation. The PAT came in at Rs. 3,552cr, up 1.1% qoq, aided by other income of Rs. 419cr.

Outlook and valuation: The Management indicated that it expects CY2013 to be better than CY2012 in terms of IT spending, with clients seeming to be having a better handle on the kind of projects they would want to execute as clients are aware of the challenging macro environment and have made plans to spend on IT considering all these challenges. TCS is pursuing a higher number of large deals (in terms of cumulative size), vs this time last year. It cited a healthy deal pipeline with outlook on growth fairly broad-based. For FY2014, the Management has given a gross hiring target of 45,000 headcounts and has already given campus offers to ~25,000 candidates. The company also announced an ~7% wage hike at offshore, a 4-6% hike in other developing economies, and 2-4% hike in the developed economies. Over FY2013-15, we expect TCS' revenue to post a 14.5% (USD terms) and 14.0% (INR terms) CAGR. On the EBITDA and PAT fronts, we expect the company to post a 12.5% and 11.2% CAGR over FY2013-15, respectively. We value TCS at 18x FY2015E EPS of Rs. 88.0 with a target price of Rs. 1,585 and maintain our Accumulate rating on the stock.

Source : Equity Bulls

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