Visit http://indiaer.blogspot.com/ for complete details Stellar double-digit revenue growth: For 2QFY2011, TCS posted higher-thanexpected
revenue of US $2,004mn (v/s our estimate of US $1,927mn), with
double-digit growth of 11.7% qoq. This is the first quarter ever when TCS reported
incremental revenue of US $210mn qoq (against Infosys at US $111mn). Strong
growth was possible on the back of robust volume growth of 11.2% (v/s our
estimate of 8.1%). Revenue growth was again broad-based in the true sense,
as all the verticals and services posted double-digit growth during 2QFY2011.
EBIT margin surges: EBIT margins surged by 86bp qoq, surpassing the 28%
mark. Growth was because of gains of 103bp, 95bp and 54bp due to favourable
exchange rate, improved productivity and SG&A efficiency, respectively, defying
the negative impact of 166bp from promotions and variable allowances.
Outlook and valuation: Management highlighted that the early indications from
clients on budgets point towards an increment in IT spending for CY2011, with a
possibility of an uptick in pricing. Along with its peers, TCS is also witnessing a
trend of clients looking out to spend on IT to drive operational efficiencies and
prepare for future growth, which is leading to a surge in transformational projects
of large sizes. We expect the company to witness a 24.2% CAGR (in US$ terms)
and a 20.4% CAGR (in INR terms) in revenue over FY2010–12E. EBITDA is
expected to witness a higher CAGR at 21.4%, as the company is reaping the
benefits of SG&A investments made in the past. We value TCS at 22x FY2012 EPS
of `47.8, i.e., at par with industry benchmark, Infosys, as it continues to bridge
the margin gap even on the back of higher scale. At current levels,
we recommend a Neutral rating on the stock.
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