Accumulate TCS; target of Rs 1262: Angel Broking

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Accumulate TCS; target of Rs 1262: Angel Broking

Angel Broking is bullish on Tata Consultancy Services (TCS) and has recommended accumulate rating on the stock with a target of Rs 1262 in its January 17, 2012 research report.

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Angel Broking is bullish on Tata Consultancy Services (TCS) and has recommended accumulate rating on the stock with a target of Rs 1262 in its January 17, 2012 research report.

"For 3QFY2012, TCS reported a modest set of numbers, in-line with street's expectations on the revenue and operating fronts; however, the company underperformed on the profit front due to huge forex loss. The major highlight of the result was that the addition of two new clients in the US$100mn plus revenue bracket. Management has highlighted that on an overall basis budgets for CY2012 are flat, with the deal pipeline remaining strong. TCS continues to remain our preferred pick along with HCL Tech in the IT pack."

"For 3QFY2012, TCS posted revenue of US$2,586mn, up 2.4% qoq, majorly led by volume growth. INR revenue stood at Rs13,204cr, up 13.5% qoq. EBITDA and EBIT margin increased by 193bp and 214bp qoq to 31.0% and 29.2%, respectively, aided by 282bp qoq positive impact of INR depreciation against USD. PAT came in at Rs2,887cr, negatively impacted by forex loss of Rs300cr, which led to net loss of Rs92cr in other income."

"Management indicated that it would hire 15,000 gross employees in 4QFY2012, which implies TCS exceeding its gross hiring target of 60,000 for FY2012 by ~6,000 employees. Even with aggressive hiring plans, management targets to maintain utilization levels excluding trainees at 82-84% in FY2012. Also, the company has already made offers to 43,600 freshers and expects joining ratio of ~70%, with most of them getting inducted in 2QFY2012 and 3QFY2012. The company bagged 10 large deals in 3QFY2012. Thus, over FY2011-13E, we expect TCS's revenue to post a 19.9% CAGR (USD terms), surpassing even the US$10bn revenue mark in FY2012 itself, after achieving the US$8bn milestone in FY2011. EBITDA and PAT are expected to grow at a CAGR of 25.3% and 20.6%, respectively, over FY2011-13E. We value TCS at 19.5x (40% premium to Sensex) FY2013E EPS of Rs64.7 with a target price of Rs1,262 and recommend an Accumulate rating on the stock," says Angel Broking research report.

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To read the full report click on the attachment