Hold TCS - Way2Wealth

TCS reported good set of numbers beating the market expectations for Q1FY11. The company showed better resilience to the Europe downturn with better growth witnessed in revenues and operating profits both sequentially and YoY, however the net profits dipped sequentially.

OPM declined by 91 bps mainly as an impact of wage hike and currency fluctuations. However, improved utilization, offshore shift and SGA efficiencies had a positive impact on the OPM. At the operational level, the company gave an all round performance, recording a volume growth of 8.1%. There was growth witnessed in all geographies in constant currency terms.

The company has strong deal pipeline. The management informed that the company is pursuing 15 large deals. TCS upped hiring target to 40000 employees from 30000 employees on better demand outlook. The management maintained a cautious stance and said that there is disconnect between macro & micro data; with the macro being uncertain and grassroot demand very strong.

In Q2FY11 the margins headwinds would be in form of promotional hikes and provision recovery would likely be missing. However, the company expects Efficiencies & growth to make up for decline and hence expects to maintain margins. At the CMP of Rs. 782, the stock quotes at PE of 19.56x its FY11E EPS of Rs.39.97. Hold.

Source : Equity Bulls

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