Neutral on TCS - Motilal Oswal

Tata Consultancy Services (TCS IN; Mkt Cap USD48.9b, CMP Rs1,138, Neutral)

Revenue grew 7% QoQ to US$2,144m, driven by volume growth of 5.7% (v/s 3.1% for Infosys) and blended pricing uptick of 1.2% (v/s 0.5% for Infosys).

IMS (19.5% QoQ) and Assurance Services (15.1% QoQ) have continued to lead growth, with double-digit sequential growth for the third consecutive quarter.

1.2% sequential increase in constant currency pricing was a positive, led by (a) scale up of contracts at higher prices, (b) 25.9% sequential growth in Asset Leverage Solutions business.

Margin headwind on appreciation of the Rupee (-112bp) was offset by: (a) mix shift towards offshore (23bp offset), and (b) higher productivity (97bp).

Demand environment remains strong as evidenced by the company's guidance to recruit 12k-15k employees in 4QFY11.

Motilal Oswal believes that 3Q results are unlikely to change investor opinion on the stock either way. Volume and pricing outperformance (CC) to Infosys is a positive. We have revised our EPS estimate higher by 1.6% for FY12 and 1.3% for FY13, primarily on account of change in our currency assumptions (Rs45 for FY12 and Rs44 for FY13). The stock trades at 21.9x FY12E EPS of Rs52 and 18.6x FY13E EPS of Rs61.3. Maintain Neutral, with a target price of Rs1,225 - 7.6% upside.

Source : Equity Bulls

Keywords