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TCS reported lower-than-expected 2Q12 US$ revenue growth of 4.7% qoq (RBS forecast: 6.0%),
dragged down by India (ex-India revenues up 5.9%). Commentary on large deal wins/pipeline is
positive, but we believe TCS's larger base and seasonally weaker quarters ahead may help
Infosys catch up on growth. Hold.
We believe revenue outperformance to peers may not be sustained; reiterate Hold
US$ revenue growth of 4.7% qoq pales versus TCS’s stellar performance over the past few
quarters. Even excluding India, international revenues rose 5.9% qoq, versus our forecast of
6.8%. Operating metrics continue to point to strong sales and operational execution. Ten
US$100m-plus deals signed on in the 2Q, including two from the troubled telecom vertical and
four from the BFSI vertical. Nearly all major geographies, verticals (barring telecom) and service
lines experienced revenue growth qoq. Our US$ revenue forecasts remain broadly intact, but we
maintain our FY12 EPS forecast and raise our FY13 forecast 2.5%, building in favourable
INR/USD assumptions but higher FX loss and tax rates for FY12F. We believe the revenue
outperformance to Infosys now may not be sustainable, given TCS’s large base and seasonally
weaker quarters ahead, while the focus at Infosys is moving from reorganisation to business
growth. We believe TCS’s premium valuation to Infosys (9% currently) may not be sustained. We
retain a Hold, with a new TP of Rs1,130 (from Rs1,105).
2Q12 revenues below our expectations; dragged down by India
2Q12 revenues grew 4.7% qoq to US$2.53bn (5.2% constant currency), vs our forecast of 6.0%.
Volume growth was 6.2% qoq, but realisation (ex-currency) was down 95bp qoq, due to a lower
contribution from fixed-price projects (down 290bp qoq) and revenue mix change. Intl revenues
rose 5.9% qoq (RBS forecast: 6.8%), while India revenues dropped 6.6% in US$.
2Q12 margin largely on expected lines; margin management to remain strong
The EBIT margin rose 94bp qoq to 27.1% (RBS est: 26.9%) due to currency (+166bp), offshore
(+4bp) and SG&A leverage (+10bp), partly offset by rate/productivity (-73bp) and ‘others’ (-13bp).
Management is confident on maintaining margins, assuming an INR/USD rate of Rs46, driven by
scale efficiencies. ‘Other income’ dropped 65% to Rs997m due to forex loss of Rs910m
(Rs800m-900m gain in 1Q12). Consequently, PAT rose just 2.5% qoq at Rs24.39bn (RBS est:
Rs24.75bn).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TCS reported lower-than-expected 2Q12 US$ revenue growth of 4.7% qoq (RBS forecast: 6.0%),
dragged down by India (ex-India revenues up 5.9%). Commentary on large deal wins/pipeline is
positive, but we believe TCS's larger base and seasonally weaker quarters ahead may help
Infosys catch up on growth. Hold.
We believe revenue outperformance to peers may not be sustained; reiterate Hold
US$ revenue growth of 4.7% qoq pales versus TCS’s stellar performance over the past few
quarters. Even excluding India, international revenues rose 5.9% qoq, versus our forecast of
6.8%. Operating metrics continue to point to strong sales and operational execution. Ten
US$100m-plus deals signed on in the 2Q, including two from the troubled telecom vertical and
four from the BFSI vertical. Nearly all major geographies, verticals (barring telecom) and service
lines experienced revenue growth qoq. Our US$ revenue forecasts remain broadly intact, but we
maintain our FY12 EPS forecast and raise our FY13 forecast 2.5%, building in favourable
INR/USD assumptions but higher FX loss and tax rates for FY12F. We believe the revenue
outperformance to Infosys now may not be sustainable, given TCS’s large base and seasonally
weaker quarters ahead, while the focus at Infosys is moving from reorganisation to business
growth. We believe TCS’s premium valuation to Infosys (9% currently) may not be sustained. We
retain a Hold, with a new TP of Rs1,130 (from Rs1,105).
2Q12 revenues below our expectations; dragged down by India
2Q12 revenues grew 4.7% qoq to US$2.53bn (5.2% constant currency), vs our forecast of 6.0%.
Volume growth was 6.2% qoq, but realisation (ex-currency) was down 95bp qoq, due to a lower
contribution from fixed-price projects (down 290bp qoq) and revenue mix change. Intl revenues
rose 5.9% qoq (RBS forecast: 6.8%), while India revenues dropped 6.6% in US$.
2Q12 margin largely on expected lines; margin management to remain strong
The EBIT margin rose 94bp qoq to 27.1% (RBS est: 26.9%) due to currency (+166bp), offshore
(+4bp) and SG&A leverage (+10bp), partly offset by rate/productivity (-73bp) and ‘others’ (-13bp).
Management is confident on maintaining margins, assuming an INR/USD rate of Rs46, driven by
scale efficiencies. ‘Other income’ dropped 65% to Rs997m due to forex loss of Rs910m
(Rs800m-900m gain in 1Q12). Consequently, PAT rose just 2.5% qoq at Rs24.39bn (RBS est:
Rs24.75bn).
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