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TCS reported results ahead of expectation for Q3FY11, beating our as well as
consensus expectation. TCS growth is aided by stronger‐than‐its‐peer volume
growth. We reiterate our ‘BUY’ rating, with a target price of Rs1,400.
Q3FY11 result – ahead of expectation: TCS reported Q3FY11 results ahead of
expectation. Revenue grew by 4.1% QoQ to Rs96.6bn (PLe: Rs95.6bn Cons:
Rs96.1bn) and 7.0% QoQ (@cc 6%, PLe: 6%) in USD terms. Despite 2.7% QoQ
rupee appreciation, EBIT margins improved by 7bps (PLe: ‐39bp). EPS grew by
10.6% QoQ to Rs11.91 (PLe: Rs11.10, Cons: Rs11.19), due to forex gain of
Rs521.6m (Q2FY11: ‐Rs537m). TCS won nine large deals in Q3FY11.
Growth not from pent‐up demand or budgetary flush; IT budget likely to see
an uptick: TCS reported strong growth across the geography (except LatAm and
India), verticals and services. According to the management, growth is not led
by pent‐up demand or budgetary flush, but due to investments made by them in
different markets. Moreover, preliminary discussion with clients indicate an
uptick in the IT budget, with improvement in discretionary spend. Despite
improvement in pricing by 118bps QoQ, the management maintained a
conservative stance on pricing. TCS guided for 37k fresher hiring for FY12.
Revising FY11 and FY12 estimates upward: We revise our FY11 and FY12
estimates upward, driven by stronger volume growth and stable margin. We
revise our EPS estimate for FY11 and FY12 by 1.8% and 2.3%, respectively.
Valuation and Recommendation – Reiterate ‘BUY’, target price ‐ Rs1,400: We
expect the volume growth to be in high 20s digit, with touch positive bias in
pricing for TCS in FY12. We expect them to maintain EBITDA margin in narrow
range despite currency and wage inflation headwinds. We reiterate ‘BUY’ rating,
with a target price of Rs1,400, 24x Dec‐12e earnings estimate
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