Positive outlook intact --TCS’ 3QFY15 results were in-line with our expectations. :: HDFC Securities

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Positive outlook intact
TCS’ 3QFY15 results were in-line with our expectations.
While, USD revenues were marginally below our
estimates, EBIDTA margin and PAT were in-line.
TCS retained its positive outlook on demand
environment. Management expects Digital Initiatives
by clients to be the key growth driver for IT spends in
CY15E. TCS expects North America to show strong
traction in CY15E (vs. CY14) led by an improved
outlook. Better prospects in Latin America and India
would also be the key drivers for CY15E.
With resurgence in volume growth momentum at
Infosys, we believe TCS could face stronger competition
in FY16. As compared to the polarized growth
witnessed in the sector over FY13-FY15, we believe the
growth differential could narrow in FY16. We model
TCS’ USD revenue growth of 15% for FY16 (vs. 12.6%
growth modeled for Infosys).
TCS has seen marginal erosion in its P/E multiple over
past three months. Despite a large base (revenues of
~USD 15.5bn for FY15), TCS continues to deliver
industry leading growth which is a positive. Our TP is
retained at Rs 2,900/sh (20x FY17 EPS). Maintain BUY.
 3QFY15 highlights : Total revenues came at USD
3,931mn, up 0.1% but below our estimates (USD
3,937mn). Constant currency revenue growth stood at
2.5% for the quarter. Volume growth came at 0.4%
QoQ, realizations improved by 2.3% QoQ and offshore
shift having a negative impact of 0.2%. EBIDTA margin
stood at 28.8%, up 20bps QoQ and in-line with our
expectations. Utilization rates (ex–trainees) reached
an all time high of 86.7%, up 50bps QoQ. APAT at Rs
53.2bn was 1.6% below our estimates owing to lower
other income and higher depreciation.
 View : Owing to cross currency woes, we factor USD
revenue growth assumption of 15.9% for FY15E
(Organic growth of 13.5% and rest owing to
consolidation of Japanese JV). The stock has seen P/E
erosion over the past few months owing to the 2Q
revenue miss and moderation in growth expectations.
TCS currently trades at 20.7x one year forward
earnings (vs. 23.5x as of 1-Oct-14). Our downgrade in
USD revenue assumptions owing to cross currency
woes is negated by the currency reset (USD vs. INR) to
lower levels. We retain our EPS estimates and target
price. We model USD revenue growth of 15.1% CAGR
(FY15-FY17E). Retain BUY with TP of Rs 2900/sh.



LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010728