Visit http://indiaer.blogspot.com/ for complete details UBS Investment Research
First Read: TCS
A magnificent quarter
Quarterly revenue touches US$2bn, volumes up 11% QoQ
TCS reported 2Q FY11 revenue of Rs92.9bn, up 13% QoQ, 3% ahead of UBS
estimates. The outperformance was contributed by both international and domestic
businesses; India-based revenue jumped 27% QoQ versus our estimates of 4%.
Dollar revenue crossed US$2bn, 4.7% ahead of our estimates. Net profit was
Rs21.1bn, 4% ahead of our estimates. We think it likely that some large deals came
on stream, pushing volumes up by 11.2% QoQ, ahead of our estimate of 6.5%.
Margins rise by 70bp QoQ despite promotions, 10,700 net addition
EBITDA margins increased by 72bp QoQ to touch 30% (last seen in Dec 04)
despite a 166bp impact due to promotions and higher variable pay, and increase in
total headcount by 10,717 to 174,417 employees. This was due to favourable
exchange (100bp), higher productivity (95bp) and SG&A improvements (54bp).
Revenue growth, margin resilience stronger than anticipated
Underlying revenue momentum for TCS has continued to surprise on the upside
for the last several quarters, defying the base effect. EBITDA margin performance
has also been stronger than anticipated, and the gap to Infosys has narrowed to
3.3% from a range of 5.5-7% over FY08-10. If such outperformance were to
continue, we see no reason for the stock to trade at a discount to Infosys.
Valuation: Neutral rating
We believe that TCS would remain the clear leader in the sector on the back of the
resilience seen in the growth and margin profile of the company so far. We are
reviewing estimates. Our price target is based on DCF.
No comments:
Post a Comment