Visit http://indiaer.blogspot.com/ for complete details Tata Consultancy Services (TCS.BO)
Hold: Strong Q2 Results; Business Momentum Continues
Very strong quarter — TCS delivered a very strong quarter with revenues of $2bn
(+11.7% qoq, our exp: $1.93bn). International revenues witnessed grew ~10%
qoq while India business demonstrated ~27% qoq growth. Growth was broadbased
– most verticals, horizontals and geographies delivered strong growth.
Margin improvement surprised — EBIT margins improved ~86bps qoq, coming on
the back of a very strong margin performance in Q1. Currency, Productivity and
SG&A leverage (partly helped by writeback of provision for doubtful debts) more
than offset the negative impact due to promotions and higher variable wages.
Short term outlook positive; Pricing flat — TCS management indicated that short
term outlook was positive with a robust pipeline and 8 large deals won in the
quarter. The net hiring of ~11k employees also supports the same. However,
management cautioned on the macro, which still remains uncertain. Pricing was
flat – management indicated that pricing will depend on next year’s IT budgets.
Comments on CY11 IT budgets — TCS management indicated that they could
comment on IT budgets next quarter but initial discussion with some customers
do suggest increase in next year’s IT spending plans.
Earnings upgrade cycle likely to continue — TCS has delivered ~50% of FY11E
consensus EPS in 1H. With good sequential growth ahead, consensus is likely to
be revised up (despite currency headwinds). TCS continues to lead the large caps
on EPS upgrades.
Stock likely strong in near term; Outperformance/valuation prices upsides partly —
The big beat suggests that consensus (including us) underestimated the business
momentum – this could continue to support stock performance. However, the
stock has already outperformed the BSEIT index by 14/19% over the last 3/12
months – which partly prices in the upgrades.
No comments:
Post a Comment