TCS - 3QFY12 Result Update - 17 Jan 2012(IFIN)

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Trend of outperformance versus peers ends

Strong INR revenue growth; healthy expansion in PAT: TCS reported strong revenue growth of 13.5% QoQ to Rs132,040mn led by moderate volume growth, uptick in pricing, and rupee depreciation. EBIT margin expanded 214bps QoQ to 29.2% led by positive impact of currency and higher pricing. PAT grew 19.8% QoQ to Rs29,162 mn despite forex losses of Rs3,000mn.

Moderate volume growth; positive surprise in pricing: Volume growth moderated to 3.2%, lower than our expectation. Pricing surprised positively, growing 1.98% QoQ on the back of change in mix of contracts.

Broad-based growth across geographies; BFSI vertical records muted growth: US revenue grew 2.4% QoQ and Europe was muted with 2% QoQ growth. Continental Europe outperformed with 6.5% QoQ growth led by large deal signings. The BFSI vertical grew a mere 1.9% QoQ whereas retail/distribution outperformed with 4.1% QoQ growth.

EAS and IMS emerge strong among services; two new large clients added: Enterprise solutions grew 5.2% QoQ proving no dip in demand for discretionary IT spends. IMS surged 13.1% QoQ.  ADM was muted with 0.8%QoQ growth. The company added two new large clients in the USD100mn+ category, taking total clients to 14 in that category.

Outlook – TCS is expected to add 15,000 employees for Q4FY12 (gross), surpassing its guidance of 60,000 employees for FY12. Deal pipeline remains strong with 10 large deals won in Q2FY12; however management expects sluggishness in discretionary IT spends going forward. IT budgets for CY12 are flat and as per expectations. The management expects recovery in growth in second half of CY12.