Accumulate TCS; target of Rs 1270: PLilladher

“We attended Tata Consultancy Services (TCS) Analyst Meet on June 08, 2012. The management indicated no worrying signs from clients’ IT budget perspective. The management is confident of its volumes growing stronger in Q1FY13 than in Q4FY12. TCS is likely to have lower hedging losses in Q1FY13 as the company has taken options and not forwards. We tweak our model for higher margins due to currency adjustment and lower forex loss. We retain it to ‘Accumulate’ rating, with a TP of Rs1,270.”

“The management does not see any material change in the decision-making process. The cautious stance taken by clients in February 2012 still continues. However, according to the company, the ramp-up of new deal wins and status-quo in the environment would help them to deliver growth better than Q4FY12 (Volume growth: 3.2% QoQ). The company is seeing some softness in demand in the BFS vertical as the sales cycle is getting longer and discretionary spend is eluding. The scenario in the UK is discouraging as well. However, the growth is likely to come from the new deal wins in Insurance and Telecom. Moreover, the company is also seeing good traction in Continental Europe (Germany, Nordic & Switzerland). According to the management, Q1FY13 will have margin headwinds due to wage hike, visa filling and variable pay; however, currency depreciation would take care of headwinds. The company will see most of currency benefits flow to margin, excluding headwinds.”

“We expect 14% volume growth, with positive pricing bias for FY13. We retain ‘Accumulate’ rating, with a TP of Rs1,270, 19x FY13E earnings estimate. We are valuing TCS at 5% premium to Infosys,” says Prabhudas Lilladher research report.     

Non-Institutions holding more than 90% in Indian cos

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