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Tata Consultancy
Aiming to retain industryleading
margins now; rich
valuations keep us EW
Quick Comment: TCS management, although
cautious of the overall macro environment, remain
confident in the outlook. However, rich valuation,
stretched expectations and trailing outperformance
for TCS keep us on the sidelines.
Japan was a bigger disruption to volumes than the
US downgrade and current macro concerns: Though
management does not have clarity on 2012 budgets as
of now, the client response so far has not upset
management’s near-term business plans. In terms of the
business disruption for clients, Japan’s quake was a
bigger factor for some (e.g., manufacturing clients) than
the current macro concerns in US.
After industry-leading revenue growth, TCS plans to
retain margin leadership as well: Infosys’s current
EBIT margin guidance, a -250bps decline, suggests that
TCS might end up with industry-leading margins for
FY12e. However, we believe yoy margin decline for
Infosys and TCS is likely to be similar, thereby leaving
TCS with some more ground to cover. As highlighted in
our recent note Global IT Services – “Per employee”
metrics are key to quality of growth, 23 September 2011,
TCS already has the lowest operating cost per
employee in the industry.
Financials: We expect TCS to deliver 29%
US$ revenue growth. We expect around of 5-6% qoq
revenue growth from TCS in the Sep-11 quarter with
margins improving qoq from Q2-Q4. We expect margins
to be ~27% for FY12. Recent rupee depreciation should
further help margins for TCS and its peers for Q2 and
the rest of the year (by 150-200bps).
Valuations: The stock trades at 19x FY12e and 16x
FY13e EPS and remains one of the most expensive
stocks in our coverage universe at a 20-30% premium to
Infosys and Wipro.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Consultancy
Aiming to retain industryleading
margins now; rich
valuations keep us EW
Quick Comment: TCS management, although
cautious of the overall macro environment, remain
confident in the outlook. However, rich valuation,
stretched expectations and trailing outperformance
for TCS keep us on the sidelines.
Japan was a bigger disruption to volumes than the
US downgrade and current macro concerns: Though
management does not have clarity on 2012 budgets as
of now, the client response so far has not upset
management’s near-term business plans. In terms of the
business disruption for clients, Japan’s quake was a
bigger factor for some (e.g., manufacturing clients) than
the current macro concerns in US.
After industry-leading revenue growth, TCS plans to
retain margin leadership as well: Infosys’s current
EBIT margin guidance, a -250bps decline, suggests that
TCS might end up with industry-leading margins for
FY12e. However, we believe yoy margin decline for
Infosys and TCS is likely to be similar, thereby leaving
TCS with some more ground to cover. As highlighted in
our recent note Global IT Services – “Per employee”
metrics are key to quality of growth, 23 September 2011,
TCS already has the lowest operating cost per
employee in the industry.
Financials: We expect TCS to deliver 29%
US$ revenue growth. We expect around of 5-6% qoq
revenue growth from TCS in the Sep-11 quarter with
margins improving qoq from Q2-Q4. We expect margins
to be ~27% for FY12. Recent rupee depreciation should
further help margins for TCS and its peers for Q2 and
the rest of the year (by 150-200bps).
Valuations: The stock trades at 19x FY12e and 16x
FY13e EPS and remains one of the most expensive
stocks in our coverage universe at a 20-30% premium to
Infosys and Wipro.
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