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We met the management of TCS to gather sense on demand environment and their
likely performance in the near-term. The management retained their optimistic view
on sustainability of growth momentum; however, highlighted lack of any positive
surprises on the margin front. We anticipate revenue momentum to remain intact,
but, margins are likely to remain under pressure as growth is expected to come
along with investments. We retain TCS, along with Wipro, as third in our pecking
order. We expect TCS to lag behind Infosys in terms of bottom-line growth.
�� Steady volume momentum is still intact: The management is confident of
delivering mid-to-high single digit QoQ growth. Growth in BFSI would be driven
by work from risk management and compliance. For Q3FY12, based on our
discussion with the management, we expect company to report volume growth
of 3-4% QoQ and we expect 3-6% QoQ volume growth for FY13.
�� No more positive surprise on margin: The management said that there would
be no more positive surprises on margins at constant currency terms. Based on
our disccussion, we continue to expect operating margins to contract for
remaining FY12 @cc. As growth from top clients peak, we expect new growth to
come from the investment in SG&A and increase contribution from onsite
putting dent to margin. The company expects ~Rs4bn hedging losses.
�� Other highlights: 1) No change in clients’ behavior 2) Clients’ financial health
much better compared to 2008 3) No pricing pressure from clients 4) Telecom to
lag group growth 5) Growth momentum intact in Assurance Services, IMS, ADM,
and BPO 6) BFSI still on steady growth track 7) M&A strategy – eyeing for
opportunity in Continental Europe and Japan; Life Science and Energy & Utilities
�� Valuation and Recommendation: We are not anticipating any significant
underperformance in terms of revenue growth compared to peers. However,
pressure on margins and high hedge exposure, would be a drag for bottom-line.
Hence, TCS stands as third in our pecking order behind Infosys and HCL Tech,
which has better operating leverage for remaining FY12. We reiterate our ‘BUY’
rating, with target price of Rs 1,230, 19X FY13e earnings estimate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We met the management of TCS to gather sense on demand environment and their
likely performance in the near-term. The management retained their optimistic view
on sustainability of growth momentum; however, highlighted lack of any positive
surprises on the margin front. We anticipate revenue momentum to remain intact,
but, margins are likely to remain under pressure as growth is expected to come
along with investments. We retain TCS, along with Wipro, as third in our pecking
order. We expect TCS to lag behind Infosys in terms of bottom-line growth.
�� Steady volume momentum is still intact: The management is confident of
delivering mid-to-high single digit QoQ growth. Growth in BFSI would be driven
by work from risk management and compliance. For Q3FY12, based on our
discussion with the management, we expect company to report volume growth
of 3-4% QoQ and we expect 3-6% QoQ volume growth for FY13.
�� No more positive surprise on margin: The management said that there would
be no more positive surprises on margins at constant currency terms. Based on
our disccussion, we continue to expect operating margins to contract for
remaining FY12 @cc. As growth from top clients peak, we expect new growth to
come from the investment in SG&A and increase contribution from onsite
putting dent to margin. The company expects ~Rs4bn hedging losses.
�� Other highlights: 1) No change in clients’ behavior 2) Clients’ financial health
much better compared to 2008 3) No pricing pressure from clients 4) Telecom to
lag group growth 5) Growth momentum intact in Assurance Services, IMS, ADM,
and BPO 6) BFSI still on steady growth track 7) M&A strategy – eyeing for
opportunity in Continental Europe and Japan; Life Science and Energy & Utilities
�� Valuation and Recommendation: We are not anticipating any significant
underperformance in terms of revenue growth compared to peers. However,
pressure on margins and high hedge exposure, would be a drag for bottom-line.
Hence, TCS stands as third in our pecking order behind Infosys and HCL Tech,
which has better operating leverage for remaining FY12. We reiterate our ‘BUY’
rating, with target price of Rs 1,230, 19X FY13e earnings estimate.
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