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Cautious on high BFSI/Europe
exposure and greater
dependence on top clients
2QFY12F: 5%+ revenue growth; forex losses to weigh on earnings
We expect TCS to report USD revenue growth of 5.4% q-q in 2Q FY12F.
EBTIDA margins are likely to improve by 80bps q-q on better rupee
realisation and SG&A leverage. Forex losses could depress the positive
impact of rupee depreciation on earnings. Management commentary on
demand and pipeline will be key things to watch for, as we sense some
moderation in management optimism over the past few quarters.
Action: High BFSI/Europe exposure a risk; remain NEUTRAL
We see the key risk at TCS being its high Banking, Financial Services and
Insurance (BFSI) and Europe exposure. These were the first segments to
be hit in the previous downturn, and we expect a repeat of the same
scenario. Valuations still appear to build in higher-than-peer-group
optimism on future growth given strong management commentary and
superior results of late, which could be at risk in a growth moderation
scenario. We maintain our Neutral rating, despite continuation of growth
momentum in the near term. Amongst Tier-1 stocks, we prefer Infosys and
HCL Tech.
Catalysts: Economic uncertainty shifting to individual clients and
management commentary turning less upbeat on demand
Valuation: Raising TP to INR1,070; remain Neutral
We have raised our EPS estimates marginally on rupee depreciation. This
leads to our TP being raised to INR1,070 (from INR1,050), based on 18x
FY13F earnings. We remain cautious on TCS on its high BFSI/Europe and
client concentration, coupled with lesser comfort on valuations.
Valuation methodology
Our TP of INR1,070 is based on 18x our FY13F earnings forecast of INR59.4. Our target
multiple is in line with the stock’s historical average, reflecting heightened economic
uncertainty and risk on its high BFSI and Europe exposure.
Risks to our valuation
The key risks include: 1) faster-than-anticipated slowdown and breakage of pricing
discipline in the industry; 2) rupee appreciation; 3) client-specific issues; and 4)
deterioration in management commentary from the current position of no issues on
demand.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cautious on high BFSI/Europe
exposure and greater
dependence on top clients
2QFY12F: 5%+ revenue growth; forex losses to weigh on earnings
We expect TCS to report USD revenue growth of 5.4% q-q in 2Q FY12F.
EBTIDA margins are likely to improve by 80bps q-q on better rupee
realisation and SG&A leverage. Forex losses could depress the positive
impact of rupee depreciation on earnings. Management commentary on
demand and pipeline will be key things to watch for, as we sense some
moderation in management optimism over the past few quarters.
Action: High BFSI/Europe exposure a risk; remain NEUTRAL
We see the key risk at TCS being its high Banking, Financial Services and
Insurance (BFSI) and Europe exposure. These were the first segments to
be hit in the previous downturn, and we expect a repeat of the same
scenario. Valuations still appear to build in higher-than-peer-group
optimism on future growth given strong management commentary and
superior results of late, which could be at risk in a growth moderation
scenario. We maintain our Neutral rating, despite continuation of growth
momentum in the near term. Amongst Tier-1 stocks, we prefer Infosys and
HCL Tech.
Catalysts: Economic uncertainty shifting to individual clients and
management commentary turning less upbeat on demand
Valuation: Raising TP to INR1,070; remain Neutral
We have raised our EPS estimates marginally on rupee depreciation. This
leads to our TP being raised to INR1,070 (from INR1,050), based on 18x
FY13F earnings. We remain cautious on TCS on its high BFSI/Europe and
client concentration, coupled with lesser comfort on valuations.
Valuation methodology
Our TP of INR1,070 is based on 18x our FY13F earnings forecast of INR59.4. Our target
multiple is in line with the stock’s historical average, reflecting heightened economic
uncertainty and risk on its high BFSI and Europe exposure.
Risks to our valuation
The key risks include: 1) faster-than-anticipated slowdown and breakage of pricing
discipline in the industry; 2) rupee appreciation; 3) client-specific issues; and 4)
deterioration in management commentary from the current position of no issues on
demand.
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