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M a c r o s t a r ti n g t o b i t e …
TCS reported its Q3FY12 numbers, which were marginally below our
estimates. US$ revenues grew 2.4% vs. our 2.7% estimate aided by 3.2%
volume growth vs. our 3% estimate. However, the key highlight of the
earnings call was the internal survey of roughly 120 odd clients. Its
findings suggest that of the 80% or 96 clients who have finalised their
budgets, 67% or 64 clients have either increased their budgets or
remained flat while the remaining 32 clients have decreased their
budgets. Noticeably, 50% or 65 of 130 discretionary projects surveyed
have either witnessed delay in decision making or project starts. We
believe the management commentary is cautious than ever before;
finally, is consistent with peers and indicates the weak macro is starting to
bite. Note, raised consensus estimates already factor in a weaker rupee
(that appreciated 6.4% since January 1, 2012) while multiple expansion is
less likely in the current environment. This implies lack of meaningful
triggers for TCS to perform. Consequently, unfavourable risk/reward &
stock outperformance in CY11 leads us to downgrade TCS to HOLD from
BUY. Yet, we reiterate that sharp sell-offs could make valuations attractive
and should be used as re-entry points by long term investors.
ƒ Earning summary
Q3FY12 US$ revenues grew 2.4% QoQ (2.9% estimate) to $2.59
billion while those in rupees grew 13.4% QoQ (13.5% estimate) to |
13,204 crore (| 13,208 crore). Rupee revenue growth was aided by
volume growth (up 3.2%), constant currency realisation (up 198 bps)
and currency (up 8.95%) while offshore effort shift (down 64 bps)
created a drag. At 29.3%, the EBIT margins were modestly above
our 29.1% estimate while reported PAT of | 2,887 crore was
marginally above our | 2,827 crore estimate.
V a l u a t i o n
We expect FY12E & FY13E rupee revenue/EPS to grow by 29.1%/18.4%
and 11.6%/9.3%, respectively. This translates to revenue/earnings CAGR
of 19%/18% over FY10-FY13E. We continue to value the stock at 20x our
FY13E EPS estimate of | 57.4. Though, we have changed our rating from
BUY to HOLD, we reiterate that sharp sell-offs could make valuations
attractive and should be used as re-entry points by long term investors.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M a c r o s t a r ti n g t o b i t e …
TCS reported its Q3FY12 numbers, which were marginally below our
estimates. US$ revenues grew 2.4% vs. our 2.7% estimate aided by 3.2%
volume growth vs. our 3% estimate. However, the key highlight of the
earnings call was the internal survey of roughly 120 odd clients. Its
findings suggest that of the 80% or 96 clients who have finalised their
budgets, 67% or 64 clients have either increased their budgets or
remained flat while the remaining 32 clients have decreased their
budgets. Noticeably, 50% or 65 of 130 discretionary projects surveyed
have either witnessed delay in decision making or project starts. We
believe the management commentary is cautious than ever before;
finally, is consistent with peers and indicates the weak macro is starting to
bite. Note, raised consensus estimates already factor in a weaker rupee
(that appreciated 6.4% since January 1, 2012) while multiple expansion is
less likely in the current environment. This implies lack of meaningful
triggers for TCS to perform. Consequently, unfavourable risk/reward &
stock outperformance in CY11 leads us to downgrade TCS to HOLD from
BUY. Yet, we reiterate that sharp sell-offs could make valuations attractive
and should be used as re-entry points by long term investors.
ƒ Earning summary
Q3FY12 US$ revenues grew 2.4% QoQ (2.9% estimate) to $2.59
billion while those in rupees grew 13.4% QoQ (13.5% estimate) to |
13,204 crore (| 13,208 crore). Rupee revenue growth was aided by
volume growth (up 3.2%), constant currency realisation (up 198 bps)
and currency (up 8.95%) while offshore effort shift (down 64 bps)
created a drag. At 29.3%, the EBIT margins were modestly above
our 29.1% estimate while reported PAT of | 2,887 crore was
marginally above our | 2,827 crore estimate.
V a l u a t i o n
We expect FY12E & FY13E rupee revenue/EPS to grow by 29.1%/18.4%
and 11.6%/9.3%, respectively. This translates to revenue/earnings CAGR
of 19%/18% over FY10-FY13E. We continue to value the stock at 20x our
FY13E EPS estimate of | 57.4. Though, we have changed our rating from
BUY to HOLD, we reiterate that sharp sell-offs could make valuations
attractive and should be used as re-entry points by long term investors.
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