TCS - 3QFY2014 Result Update - Angel Broking

TCS, in its 3QFY2014 results, reported revenues and operating margin a tad lower than expectations while net profit stood higher than estimates on account of healthy forex gains. The company's performance was impacted due to ~6% sequential decline in Indian business revenues; international business revenues grew modestly by 3.8% qoq in USD terms. The company's overall volume growth came in at 1.8% qoq, which is a bit disappointing; however, excluding India business, volume growth was healthy at 2.9% qoq. The Management's bullish commentary, coupled with continued hiring and pick up in discretionary spends point that TCS will continue to be an outperformer in the sector. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 3QFY2014, TCS posted a revenue of US$3,338mn, up 3% qoq. In INR terms, the revenue came in at Rs. 21,294cr, up 1.5% qoq. The EBIT margin of the company declined by 42bp qoq to 29.7% as the company increased its S&M investments. Net profit grew substantially by 13% qoq to Rs. 5,314cr, supported by a forex gain of Rs. 299cr as against a loss of Rs. 377cr in 2QFY2014.

Outlook and valuation: The Management reiterated that it expects FY2015 to be better than FY2014 on the back of strong pipeline and budget indications from clients. A healthy pipeline, broad-based deal signings, initial signs of up-turn in discretionary spending and good traction in annuity, traditional and transformational business - all these factors have collectively lent confidence to the company in estimating FY2015 to be a better year than FY2014. TCS also indicated that it is reaping benefits of investments in geographies such as Continental Europe and Latin America. The Management, however, cited a word of caution on India business, which it expects to remain muted till 1HFY2015 due to impending elections. Over FY2013-15E, we expect TCS' revenue to post a CAGR of 16.5% in USD terms and of 24.3% in INR terms. We maintain our Accumulate rating on the stock with a target price of Rs. 2,520.

Source : Equity Bulls

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