JP Morgan 'overweight' on TCS, ups target price

Morgan has forecast TCS’s FY12 earning per share at Rs 54 and FY13 EPS at Rs 64.8.

"TCS has exhibited a much better revenue growth profile over the last few quarters than Infosys and top-line growth has been accompanied by improved profitability, which we believe justifies the premium," said JP Morgan's analysts, Viju George and Amit Sharma in their note Monday.

Also, JP Morgan believes TCS has replaced Infosys as valuation benchmark in India IT service sector following its strong fourth quarter 2010-11 (January-March) earnings and all time low margin gap with Infosys at 100 bps.

"TCS' margins are higher than Infosys, adjusting for its India-exposure (8.8% of revenues), which comes at less than half the margins of its international business. In several ways, we believe TCS has deservedly emerged as the valuation benchmark in the (IT) sector," the analysts said in the note.

Going forward, TCS has proposed a 12-14% offshore wage hike despite moderating attrition showing the IT firm's confidence in its FY12 earnings, JP Morgan said.

However the brokerage house cautioned that appreciating rupee and higher-than-expected wage expenses may put pressure on TCS' revenue growth.