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Heightened expectations keep us cautious
Premium valuations and
optimised operations make for
limited upside triggers
Action: Heightened expectations a concern; reaffirm Neutral
While we like TCS for its potential to drive market share gains helped by
the widest verticals, service lines and geographical presence across tier-1
IT companies, we believe disappointments are likely in the interim on any
commentary moderation, given: 1) high Street expectations built into
valuations; 2) higher exposure to Europe and BFSI – two segments most
susceptible to a slowdown; and 3) limited operational scope to counter
cost pressure. We would wait for more valuation comfort given these risks
and hence reaffirm our Neutral rating. We prefer CTSH/INFO over TCS.
Upbeat commentary unlikely to manifest in material differentials
We expect TCS to post similar q-q revenue growth rates, compared with
Infosys over the next two quarters, despite giving more upbeat
commentary. On margins, we expect Infosys is likely to widen the gap
over TCS in FY13F on account of TCS’ limited margin levers to offset
pressure from: 1) wage inflation and 2) potential cost pressure in the
commoditised parts of the business, given the highly optimised operations.
Catalysts: A moderation of management commentary on demand
Valuation: TP raised to INR1,230 on roll forward and USD-INR change
We expect a USD revenue CAGR of 20% and EPS CAGR of 19% over
FY11-13F. Our estimates are higher primarily due to our assumption of
better USD-INR rates. We raise our TP to INR1,230 (from INR1,100)
based on 18x one-year-forward earnings (methodology unchanged).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Heightened expectations keep us cautious
Premium valuations and
optimised operations make for
limited upside triggers
Action: Heightened expectations a concern; reaffirm Neutral
While we like TCS for its potential to drive market share gains helped by
the widest verticals, service lines and geographical presence across tier-1
IT companies, we believe disappointments are likely in the interim on any
commentary moderation, given: 1) high Street expectations built into
valuations; 2) higher exposure to Europe and BFSI – two segments most
susceptible to a slowdown; and 3) limited operational scope to counter
cost pressure. We would wait for more valuation comfort given these risks
and hence reaffirm our Neutral rating. We prefer CTSH/INFO over TCS.
Upbeat commentary unlikely to manifest in material differentials
We expect TCS to post similar q-q revenue growth rates, compared with
Infosys over the next two quarters, despite giving more upbeat
commentary. On margins, we expect Infosys is likely to widen the gap
over TCS in FY13F on account of TCS’ limited margin levers to offset
pressure from: 1) wage inflation and 2) potential cost pressure in the
commoditised parts of the business, given the highly optimised operations.
Catalysts: A moderation of management commentary on demand
Valuation: TP raised to INR1,230 on roll forward and USD-INR change
We expect a USD revenue CAGR of 20% and EPS CAGR of 19% over
FY11-13F. Our estimates are higher primarily due to our assumption of
better USD-INR rates. We raise our TP to INR1,230 (from INR1,100)
based on 18x one-year-forward earnings (methodology unchanged).
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