Buy TCS; target of Rs 1340: Arihant capital markets

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Buy TCS; target of Rs 1340: Arihant capital markets

Arihant capital markets is bullish on Tata Consultancy Services (TCS) and has recommended buy rating on the stock with a target of Rs 1340 in its January 18, 2012 research report.

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Arihant capital markets is bullish on Tata Consultancy Services (TCS) and has recommended buy rating on the stock with a target of Rs 1340 in its January 18, 2012 research report.

"TCS came out with their results which were slightly above our expectation on the topline front but a tad lower on the bottomline front. Revenues came at Rs.13203.9cr (a growth of 13.5% QoQ) while net profit came at Rs.2802.8cr (up by 21.8% QoQ) which was slightly lower than our expectation of Rs.2915cr. Volume growth was relatively muted at 3.2%, thus coming lower that Infosys' volume growth of 3.4% for the quarter. Considering that TCS has been consistently beating Infosys' volume growth for almost 2 years, this may dampen the mood for the TCS stock."

"TCS improved its margin aided mainly by the Rupee depreciation. EBIT margin helped by a positive currency impact of 282 bps improved by 213 bps. An improvement in realization by 198 bps also helped in bettering margin. Owing to hedges, the company took a forex hit of Rs.300.8cr. Despite that, it managed to improve its net margin by 90 bps QoQ. Key geographies North America, UK and Europe showed robust QoQ growth of 13.3%, 9.5% and 18.1% respectively. Verticalwise, telecom was the only laggard growing by 6.9% QoQ while the rest of the verticals showed robust growth from mid to high teens. TCS's major vertical BFSI continued to show strength with growth of ~13% QoQ. The management further assured that they are not seeing any let up in demand in BFSI within their portfolio as they are seeing majority of their banking and financial clients going ahead with their planned budget spend. With regards to telecom the management feels that it will be on the growth path soon as it has already signed couple of large deals in the telecom vertical whose revenue will start getting reflected in the coming quarters."

"We believe that the TCS management gave ample indication that the future is looking more hazy than before. Though, TCS continues to win large deals and show good growth numbers, a further deterioration in the overall environment cannot be ruled out. Therefore, factoring in the weaker market sentiment and a tough business environment, we reduce our target PE multiple to 21x from 23x earlier. However, incorporating a higher INR/$ rate compared to our previous expectation we tweak upwards our profit estimates. We thereby arrive at a lower target price of Rs 1340 per share (previously Rs. 1370). We thereby maintain our "BUY" call on the stock," says Arihant capital markets research report.

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To read the full report click on the attachment