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Mkt share and vendor consolidation gains
TCS delivered astounding volume growth of 11.2% (qoq)
in Q2FY11 surprising the street and delivering revenues
>$2bn. We believe market share and vendor consolidation
gains on top of strong spending on Technology in 2010 is
leading to this strong near term performance. Out
performance and strong near term demand lead us to up
our EPS estimates and target price. We how ever continue
to remain negative on the sector and the stock based on
our view that 2011 demand is unlikely to be as strong as
what the street is currently expecting (see our sector
report ‘Focus on the Macro and not the Micro’ dated 19
Oct 2010) and believe this is the right time for investors to
exit. Further we believe it should trade at a good discount
to Infosys due to a lower ROIC while likely displaying
growth that is at par.
clocking double digit growth. Infrastructure services
(22%) and EAS (19%) grew the fastest indicating good
demand in discretionary projects. Europe grew by 15%
while India grew by 27% (in Rs terms).
Margins expanded aided by currency. Operating
margins expanded (qoq) by 86bp. Margin expansion
was due to favourable currency (103 bp), productivity
gains (95bp) and lower SGA (54bp). Promotions and
variable payouts had a negative impact of 166 bp.
Change in Estimates and target price. On the back of
this performance, we have increased our topline
growth and EPS estimates for FY11E-FY13E. We revise
our target price to Rs774 from Rs742. We maintain Sell.
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