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Tata Consultancy
Reassuring call with Europe
head
„Demand recovery continues
We hosted an investor call this evening with TCS’s head of UK and Europe, Mr.
A.S.Lakshminarayanan. It was reassuring to hear that the recovery seen in the
last two quarters continues and the pipeline is strong. He also echoed what the
CFO had recently mentioned at our conference that margins are largely
sustainable. We forecast 22% EBITDA and 20% EPS CAGR over FY11-13. TCS
remains one of our top picks, offering a potential 30% upside to Rs1,400.
Demand trends encouraging; Upward bias to pricing
Macro concerns are not seen to be impacting deal closure. The banking, financial
services and insurance vertical is seeing demand driven by regulatory
compliance, risk management, business rationalization, etc. The Energy vertical is
seeing regulation-related activity. Retailers are looking at doing new projects with
respect to supply chain, e-commerce, customer analytics, etc. The Telecom
vertical is seeing some growth, led by cost-cutting projects at equipment vendors
and modernization-related and vendor consolidation-related spend at carriers.
While it may be early to call an uptrend in pricing, there is an upward bias.
Key differentiating factors
Key strengths are its customer-centricity, domain expertise reflected in its
repository of software assets (e.g., the core banking Deutsche win), its focus on
localization (has 150-200 people in Germany) and its global delivery network.
Margins should be largely sustainable
Margins should be largely sustainable, helped by non-linear initiatives (like
platform BPO, cloud-based SMB offering and products), scale benefits, offshoring and the pay-off from investments made in solutions and new geographies.
Price objective basis & risk
Tata Consultancy (TACSF)
Our Price Objective of Rs1,400 is based on a target FY12 EV/EBITDA-to-2-year
EBITDA growth of 0.85x, in line with Infosys. This implies a target FY13e PE of
22x, in line with the current 1-year forward (FY12e) PE. Downside risks to our
estimates stem from macro-led delays in IT spending or a sharp appreciation of
the Rupee.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Consultancy
Reassuring call with Europe
head
„Demand recovery continues
We hosted an investor call this evening with TCS’s head of UK and Europe, Mr.
A.S.Lakshminarayanan. It was reassuring to hear that the recovery seen in the
last two quarters continues and the pipeline is strong. He also echoed what the
CFO had recently mentioned at our conference that margins are largely
sustainable. We forecast 22% EBITDA and 20% EPS CAGR over FY11-13. TCS
remains one of our top picks, offering a potential 30% upside to Rs1,400.
Demand trends encouraging; Upward bias to pricing
Macro concerns are not seen to be impacting deal closure. The banking, financial
services and insurance vertical is seeing demand driven by regulatory
compliance, risk management, business rationalization, etc. The Energy vertical is
seeing regulation-related activity. Retailers are looking at doing new projects with
respect to supply chain, e-commerce, customer analytics, etc. The Telecom
vertical is seeing some growth, led by cost-cutting projects at equipment vendors
and modernization-related and vendor consolidation-related spend at carriers.
While it may be early to call an uptrend in pricing, there is an upward bias.
Key differentiating factors
Key strengths are its customer-centricity, domain expertise reflected in its
repository of software assets (e.g., the core banking Deutsche win), its focus on
localization (has 150-200 people in Germany) and its global delivery network.
Margins should be largely sustainable
Margins should be largely sustainable, helped by non-linear initiatives (like
platform BPO, cloud-based SMB offering and products), scale benefits, offshoring and the pay-off from investments made in solutions and new geographies.
Price objective basis & risk
Tata Consultancy (TACSF)
Our Price Objective of Rs1,400 is based on a target FY12 EV/EBITDA-to-2-year
EBITDA growth of 0.85x, in line with Infosys. This implies a target FY13e PE of
22x, in line with the current 1-year forward (FY12e) PE. Downside risks to our
estimates stem from macro-led delays in IT spending or a sharp appreciation of
the Rupee.
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