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Action: We remain Neutral and continue to prefer TCS over Infosys
TCS posted better-than-expected results and maintained its outlook of
FY14F being a better year than FY13F on: 1) improved clients clarity on
spending; 2) better discretionary spending and European growth outlook;
and 3) improved deal flow momentum versus the start of FY13F. We
continue to expect TCS to outperform INFO on revenue and EPS growth,
and value TCS at a ~10% premium to INFO on greater growth
predictability and better control on margins. We continue to prefer TCS
over INFO.
Catalyst: Continued market share gains is a key upside catalyst
TCS 3Q: No surprises; reduced risk of portfolio shifts towards INFO
TCS 3Q results were largely in line on revenues (3.3% q-q vs est. of 3.1%
q-q), but ahead on margins (up 50bp q-q vs est. of 20bp decline) and PAT
(INR35.5bn vs est. of INR34.1bn). The key disappointment was soft
volume growth of 1.25% q-q; however, we remain assured by
management’s optimistic outlook on FY14F growth and continue to like
the tightly managed operations at TCS.
Valuation: TP raised to INR1,470 based on 17x 1 yr forward EPS
Our TP rises to INR1470 on roll forward and ~4% increase in EPS over
FY14/15F driven by higher USD-INR and lower tax rate assumption, while
keeping revenue growth intact at 13.5% CAGR over FY13-15F. We look
for EPS CAGR of ~12% over FY13-15F.
Action: We remain Neutral and continue to prefer TCS over Infosys
TCS posted better-than-expected results and maintained its outlook of
FY14F being a better year than FY13F on: 1) improved clients clarity on
spending; 2) better discretionary spending and European growth outlook;
and 3) improved deal flow momentum versus the start of FY13F. We
continue to expect TCS to outperform INFO on revenue and EPS growth,
and value TCS at a ~10% premium to INFO on greater growth
predictability and better control on margins. We continue to prefer TCS
over INFO.
Catalyst: Continued market share gains is a key upside catalyst
TCS 3Q: No surprises; reduced risk of portfolio shifts towards INFO
TCS 3Q results were largely in line on revenues (3.3% q-q vs est. of 3.1%
q-q), but ahead on margins (up 50bp q-q vs est. of 20bp decline) and PAT
(INR35.5bn vs est. of INR34.1bn). The key disappointment was soft
volume growth of 1.25% q-q; however, we remain assured by
management’s optimistic outlook on FY14F growth and continue to like
the tightly managed operations at TCS.
Valuation: TP raised to INR1,470 based on 17x 1 yr forward EPS
Our TP rises to INR1470 on roll forward and ~4% increase in EPS over
FY14/15F driven by higher USD-INR and lower tax rate assumption, while
keeping revenue growth intact at 13.5% CAGR over FY13-15F. We look
for EPS CAGR of ~12% over FY13-15F.
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