Hold TCS; target of Rs 1075: Emkay

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Hold TCS; target of Rs 1075: Emkay

Emkay Global Financial Services has recommended hold rating on Tata Consultancy Services (TCS) with a target of Rs 1075, in its January 18, 2012 research report.

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RELATED NEWS Buy HCL Tech; target of Rs 500: Arihant capital markets Buy South Indian Bank; target of Rs 31: Aditya Birla Money Buy ING Vysya Bank; target of Rs 491: Nirmal Bang ALSO READ See previous views by Emkay Global Financial Services See what other Experts & Brokerages are saying about TCS See messages about TCS TCS BSE | NSE 01/06/12 Are Mutual Funds betting on TCS?

Emkay Global Financial Services has recommended hold rating on Tata Consultancy Services (TCS) with a target of Rs 1075, in its January 18, 2012 research report.

"TCS management has remained confident of the demand environment until now (despite cautious outlook by peer Infosys over recent history). However the weak macro environment has finally caught up the management commentary with co now indicating that (1) deal pipelines are intact however clients taking longer to take decisions, (2) delay in project starts impacting discretionary spending, and (3) getting price increases is difficult in the current environment (' we expect pricing to be stable in a narrow band') . Company indicated that it has given campus offers to ~43.5k graduates for FY13 and plans to make a gross hiring of ~15k during March'12 qtr."

"Dec'11 qtr marks the 2nd qtr wherein TCS has delivered in line /lower than peer Infy after the stupendous performance that has continued to surprise the street over several quarters in a row (note that TCS added similar incremental revenues as peer Infosy for the 1st time in 7 quarters). While revenues at US$ 2,586 mn (+2.4% QoQ, +4.5% QoQ in constant currency terms) missed modest expectations (3% QoQ US$ revenue growth) margins improved by ~190 bps sequentially buoyed by weak currency. Vol growth cooled to 3.2% QoQ after the scorching pace in recent quarters(V/s 3.1% for peer Infy) with Equipment and S/w license sales ( up 27% QoQ) aiding revenue growth. Profits at Rs 28.9 bn (+18.4% QoQ) met estimates aided by lower than estimated forex losses and lower taxes (22.6% V/s Emkay est of 24%). Headcount addition was decent at ~12k taking the total headcount to 226,751. Revenue performance was tepid across top clients with top 5/10 clients flat QoQ. Financial services revenue growth was the lowest since March'10 qtr, reflecting rampup challenges in some of the top financial services clients in our view."

"We cut rating on TCS to HOLD citing heightened investor expectations in August'11 and TCS's performance in both Sep'11 and Dec'11 qtrs has missed relatively modest expectations. We moderate revenue estimates (model in 14%/16% US$ revenue growth for FY13/14 V/s 16%/17% earlier) driving a 3.4%/4.2% cut in earnings to Rs 63.2/71. Dec'11 qtr marks the 2nd successive quarter of convergence in operating performance to Infosys after a streak of superior performance through several quarters and we see that trend continue. Retain HOLD with a revised TP of Rs 1,075 (V/s Rs 1,110 earlier)," says Emkay Global Financial Services research report.

Institutional holding more than 40% in Indian cos

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