Hold TCS; target Rs 1,262: R K Global

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Hold TCS; target Rs 1,262: R K Global

R K Global has maintained hold rating on Tata Consultancy Services (TCS) with a target price of Rs 1,262 in its February 16, 2012 research report.

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R K Global has maintained hold rating on Tata Consultancy Services (TCS) with a target price of Rs 1,262 in its February 16, 2012 research report.

"Tata Consultancy Services Ltd (TCS) and Mitsubishi Corporation, Japan, on Wednesday announced a new JV, Nippon TCS Solution Centre, will be solely concentrated for targeting the Japanese IT market. The new venture will offer a full service suite of IT, BPO and infrastructure application services to Japanese corporations. The JV will act as a synergy, coupling TCS's application expertise & Mitsubishi's client reach amongst the biggest Japanese corporations, TCS Japan hopes to be a USD500 mn enterprise FY'16."

"TCS has announced a 60:40 JV with Japan's Mitsubishi Corp. to serve clients in the East Asian region. Both the companies will invest USD5mn to set up a delivery center in Japan. The JV Company will offer a full service suite of IT, BPO and infrastructure services to Japanese corporations. TCS said that this JV comes against the backdrop of a strong Yen (¥), the globalization of supply chains and a growing trend toward overseas mergers and acquisitions, all of which act as triggers for the increasing globalization of Japanese companies. This has brought heightened interest in the role of global IT services to link domestic and overseas operations. We feel, the JV is important for TCS as the company derives only ~1.2% of its revenue from Japanese markets and ~7% from the APAC region. This, we think is a good opportunity for TCS in which it can leverage a partner like Mitsubishi and get an entry into the world's third largest and one of the most powerful economies of Asia."

"JV will be positive in the sense that the market share of TCS in Japan will rise as a result of the partnership with Mitsubishi and the company will also have a presence across all geographies and that will positively impact revenues. At CMP, the stock trades at a P/E*** of ~17.9x & P/BV*** of ~7.0x of FY'13E EPA and Book-Value. We would re-iterate a HOLD, considering slow movement and relative stench on upsides and thus re-affirming a revise TP of Rs 1,262 over a 12M period, with a possible upside of ~1.6%, factored over a P/E of ~18.2x & P/BV of ~7.1x using FY'13E EPS of Rs 69 and BV of Rs 177," says R K Global research report.

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To read the full report click on the attachment