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Contents
Quick Comments post discussions with TCS management
Remains positive on volume momentum heading into CY11
TCS continues to remain extremely confident of volume momentum sustaining into CY11 driven by broader basing of spending to other verticals apart from financial services. Company noted that it remained confident of a 20%+ revenue CAGR over the next three years driven by (1) resumption of the offshore IT shift after the downturn in late CY08/early CY09, (2) a large deal renewal cycle with mega deals getting broken into smaller sizes of US$ 200-300 mn, sweet spot for Indian techs and (3) pick up in spends in Telecom and Manufacturing verticals after the financial services led revenue uptick for Indian tech companies. TCS management indicated that within financial services, it was seeing clients spending focused on regulatory and compliance related areas as M&A related spending was tapering off while expects growth to pick up verticals like Manufacturing and Telecom ahead as clients look to improve cost efficiencies. TCS mgmt mentioned that it has already given campus offers of ~35k for FY12 (V/s ~24k in FY11). TCS continues to expect an uptick in pricing over the next 2-3 quarters.
Dec’10 quarter could also turn out to be an encore of the strong performance in the past few quarters
Our interactions with co management indicate that although Dec’10 quarter may not be as bumper as ~12% QoQ revenue growth performance of Sep’10 quarter (double digit growth for the 1st time in 8 quarters) impacted by lower number of working days as well as planned shutdowns in select Telecom OEM’s/ Hi Tech and Manufacturing clients, it would be still turn out to be a strong show in our view. We currently pencil in a 7% QoQ revenue growth for Dec’10 quarter with nearly flat EBITDA margins (down by ~20 bps QoQ to 29.8%) despite margin headwinds from strong hiring (co indicated that it had hired ~8k-9k freshers during the quarter) and currency appreciation.
Upping FY12/13E earnings by ~7.5%/11% respectively to Rs 51.1/60.2 respectively, raise March’12 TP to Rs 1,250
We now estimate a 24%/19.2% US$ revenue growth for FY12/13 (V/s 22%/17% earlier, after tweaking up our FY11 revenue estimates marginally), reset our US$/INR assumptions to Rs 45/$(V/s Rs 44/$) driving a 7.5%/11% increase in our FY12/13E earnings to Rs 51.2 and Rs 60.2 respectively. A 7-8% upmove in the stock price over the past week already factors in a strong Dec’10 showing somewhat however we note that TCS has continued to surprise nearly all the quarters on the street over the past few quarters which has driven TCS’s strong out performance V/s peers in the last 12 months. Although valuations appear stiff at ~23xFY12E earnings appear stiff, we would back further stock price upsides driven by earnings upgrades. We retain ACCUMULATE with a revised March’12 price target of Rs 1,250(V/s Rs 1,075 earlier). We would be coming up with a detailed note shortly.
n Dealer Comments
The markets started the day’s session on a positive note with almost 50 odd point’s upward gap tracking strong cues from the global markets particularly the firm Asian counterparts. Post good and firm opening markets continued to trade in the positive zone throughout the day on the back of higher advance tax payments by top Indian firms for Q3 and easing Korean tensions. Good buying was seen in Metal space across the board post firm prices of the base metal in LME at almost two and half years highs and most of the stocks were up in the range of 3-5%each like Tata Steel, Hindalco, Sail, and JSW Steel. Even the much battered banking stocks saw some respite and good buying was seen but mostly in private sector banking stocks. Even short covering was witnessed in the derivatives segment with OI coming down. Besides buying in realty, oil & gas and consumer durables stocks also aided the day’s rally. The markets will continue to be driven by the news of the day, sometimes positive and sometimes negative but the only console is that the underlying long term sentiment and the outlook growth story shall continue to remain positive. Finally the markets closed the day on a positive note towards the end with Sensex gaining 171 points or 0.86% higher to settle at 20060 levels it’s highest since 15th November while Nifty gained 54 points or 0.90% higher to settle at 6000 levels its highest closing since 2nd December. The overall traded volumes were lower compared to the earlier day by almost 2% and were at Rs 1128 bn. While delivery based volumes were quite higher compared to the earlier day at 46.9% of the total traded turnover. Among the Fund activities FII’s were net sellers to the tune of Rs 0.71 bn 20th December 2010. While on 21st December 2010 FII’s were net sellers to the tune of Rs 0.34 bn in the cash segment while in the F&O segment FII’s were net buyers to the tune of Rs 7.74 bn while Domestic Funds were net buyers to the tune of Rs 3.73 bn.
n Technical Comments
Above 6000
With today’s rally of 50 odd points Nifty managed to clear the psychologically important level of 6000. Apart from that today’s rally also cleared the falling channel (grey one) on closing basis, which indicates that the current up move has higher chances to continue in the coming session too. Moreover, currently, Nifty is trading within a rising channel (yellow one), whose higher targets are still pending and hence we are amplifying our short term target to 6080 level with a reversal of 5950.
BSE Metal:
BSE Metal index has formed a higher top higher bottom and hence the current move is expected to continue in the coming session too. The next target to watch out for is 17,300.
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