Current view
Highest revenue growth in the sector: We expect TCS to post 18%
revenue CAGR over FY10-FY13E, mainly driven by resurgence in the BFSI
vertical. We also expect that various operating levers, such as utilization,
will help TCS sustain margins further in FY11E/FY12E, translating into 13%
EPS CAGR over FY10-FY13E.
BFSI to drive revenue growth: We maintain that TCS will continue to
benefit from global recovery in the BFSI vertical and our growth forecast is
driven by its high BFSI exposure (45% of revenues from this segment).
Strong 2QFY11: We expect 2QFY11 results to be strong and expect 9%/7%
sequential growth in revenue and earnings on the back of robust volumes.
Valuations: TCS is trading at a P/E of 20.1X on FY2012E EPS of Rs47.26, a
5% discount to Infosys (INFY.BO) and Wipro (WIPR.BO), both of which are
trading at 21.6X. This is at the higher range of its 6-year historical average
trading range of 17X-21X. Amongst the large caps, TCS is our preferred pick
owing to its better revenue and cash return profile, in our view. However, we
believe current valuations fully reflect its growth and earnings outlook.
Key upside risks: (1) Strong recovery in discretionary tech spending; (2)
faster-than-anticipated recovery for the broader market. Key downside
risks: (1) High attrition rates; (2) currency volatility.
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