India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TCS delivered another strong quarter, with broad-based revenue growth of 7.5% qoq in US$
terms, with margins meeting expectations. We expect TCS to remain ahead of the curve on topline
growth, which can sustain the premium valuations that it currently enjoys. Reiterate Buy.
Another strong quarter; we expect valuation premiums to be sustained
TCS again delivered a strong performance – US$ qoq revenue growth of 7.5%, which was broadbased
across most verticals, geographies and service lines. Management’s assessment of the
demand environment was uniformly bullish, highlighted by: 1) an increase in the discretionary
component of the deal pipeline; 2) strong demand in Europe (6.6% qoq growth); and 3) client
execution on projects on track despite macro concerns. Even with large deal traction, TCS closed
10 deals in 1Q12 and its deal pipeline remains healthy across verticals and markets. We raise our
FY12 and FY13 EPS forecasts 1.8% and 1.4%, respectively, given the company’s good
performance and confident outlook. We expect TCS to sustain its valuation premium in the
sector, given consistently higher profitable growth despite its high revenue base.
1Q12 revenues: broad-based growth is impressive on many counts, in our view
TCS’s 1Q12 revenues grew 7.5% qoq to US$2.41bn (6.2% in constant currency terms),
exceeding our forecast of 5.8%. Volume growth was 7.4% qoq, but realisation (ex-currency) was
0.5% lower qoq, partly due to higher growth outside developed markets. International revenues
rose 6.9% qoq (RBS forecast: 5.6%). Nearly all geographies, verticals and service lines grew
qoq, which we believe signals broad-based demand traction and strong execution.
1Q12 margin on expected lines – strong show of confidence on FY12
The EBIT margin was expectedly down 214bp qoq to 26.2% under IFRS (RBS US GAAP
forecast: 26.1%) due to the impact of salary hikes (-251bp), higher SG&A costs (-76bp) and forex
(-9bp), partly mitigated by realisation/productivity/offshoring (+122bp). Management expressed
confidence in sustaining the EBIT margin at least at 27% in FY12 (28.1% in FY11), and has more
confidence on a pricing tailwind in coming quarters, although price increases are being pushed
back. ‘Other income’ rose 28.9% to Rs2.89bn due to forex gains (qoq change of Rs910m) and
higher treasury yields. Consequently, PAT was flat at Rs23.8bn despite significant margin
compression.
No comments:
Post a Comment