Tata Consultancy Services (TCS) Buy Target : | 2850 :: ICICI Securities, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Guarded optimism…
We attended TCS’ quarterly business update wherein the overall mood
was cautious. Though a softer H2 message was communicated along
with Q2 earnings, the sentiment, it seems, has deteriorated relatively.
Interestingly, the management was incrementally circumspect in
discussing CY15E budget trends given clouded visibility. Though
Q3FY15E constant currency (CC) growth may be similar to Q3FY14
(2.1%), reported dollar growth may see an adverse cross currency impact
of ~220 bps, adjusting for which, FY15E organic dollar growth may be
~14% vs. 16.2% in FY14. That said, it may still be industry leading.

Margins may be flat as rupee tailwinds may offset growth headwinds…
Sequentially, margins could be flat-to-positive as gains from rupee
depreciation (~60-70 bps) could likely be offset by growth headwinds.
Other income may be marginally higher QoQ led by hedge gains offset by
lower interest income on account of lower average cash balance. That
said, we adjust our FY15E margin assumption to 26.8% vs. 27% earlier.
Diligenta weakness persists; euro may be bright spot in Q3…
From a vertical perspective, telecom and smaller verticals could lead
growth while retail, manufacturing, Hi-tech, BFSI (particularly insurance in
UK and banking products portfolio) may remain soft. Demand in the US
could be seasonally weak but in line while Europe (except UK) may
surprise positively. From a services perspective, ADM and IMS are better
while others could be in line or below the company average.
Corrections opportunities to accumulate TCS shares
We are adjusting our FY15E estimates modestly and now expect rupee
revenues, PAT to grow 14.4%, 8% (16%, 10% earlier) in FY15E and
16.5% 19.4% (16%, 18%) in FY16E, respectively. This translates to
revenue, EPS CAGR of 15.4%, 13.5% (16%, 14%), respectively, during
FY14-16E. Though the estimate revision leads to a modest revision in our
target price (| 2,850 vs. | 2,900 earlier), we reiterate that TCS continues to
be the best play in the Indian IT services space. Also, corrections should
be used to accumulate the shares

LINK
http://content.icicidirect.com/mailimages/IDirect_TCS_CoUpdate_Dec14.pdf