Accumulate TCS; target of Rs 1280: Unicon Investment

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Accumulate TCS; target of Rs 1280: Unicon Investment

Unicon Investment is bullish on Tata Consultancy Services (TCS) and has recommended accumulate rating on the stock with a target of Rs 1280 in its January 18, 2012 research report.

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Unicon Investment is bullish on Tata Consultancy Services (TCS) and has recommended accumulate rating on the stock with a target of Rs 1280 in its January 18, 2012 research report.

"Tata Consultancy Services Ltd. (TCS) has delivered a decent performance for the third quarter, which is in-line with Unicon's quarterly estimates. Good revenue growth across all service lines and geographies has contributed to a good performance for the quarter."

"TCS reported revenue at INR 132.04 bn was up 37% and 14% on a YoY and a QoQ basis respectively. EBITDA for the quarter stood at INR 40.94 bn, up 41% and 21% on a YoY and QoQ basis respectively. EBIT margins of 29.2% were up 213 bps QoQ, mainly on account of weak INR v/s USD in the quarter. TCS reported a forex loss in the quarter of INR 3 bn which impacted PAT margins by -330 bps YoY. TCS saw moderate volume growth of 2.3% this quarter. Pricing improved by 198 bps (in constant currency terms), but the company remains cautious on pricing trends moving forward. Offshore revenue stood at 50.5%, Onsite revenue stood at 45% while Delivery Center Revenues (GDC / RDC) was 4.5% of total revenue. Utilization excluding trainees was at 82%. If we include trainees, utilization was at 74% TCS added 11,981 employees (net) in this quarter, taking the total employee base to 226,751. Attrition stood at 11.7% in Q3FY12, which is the best in the IT space."

"TCS added 40 new clients in the quarter and the number of active clients stands at 1003. TCS signed 10 new large deals across multiple verticals. TCS added 2 new USD 100 mn + clients in the quarter and the number now stands at 14. TCS increased its % revenue from new business to 1.7% this quarter, as compared to 0.7% QoQ. BFSI segment grew 32.5%, Retail & Distribution grew 53.8%, and Hi-Tech grew 62.1% while Manufacturing grew 48.1% on a sequential YoY basis. Continental Europe and Asia Pacific showed strong growth of 54.2% and 52% YoY respectively. North America and Latin America also grew at 36% and 37% YoY respectively."

"Macro economic dynamics along with the global scenario will continue to be watched closely by the entire IT space as majority of their revenue is generated from US and Europe. TCS should continue to grow across all verticals and geographies and specifically the Telecom vertical, where it expects better growth in the quarters ahead. The company has more deal visibility as compared to its peers as majority of its clients have finalized IT budgets for next year. With strong fundamentals and management, the company is in a solid position to retain existing clients and add new clients. At CMP, the stock is trading at 17.6x FY13E earnings. We recommend an ACCUMULATE rating on this stock and maintain our price target of INR 1280, implying a potential upside of ~16% from current levels," says Unicon Investment research report.   

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