Hold TCS; target of Rs 1203: BP Equities

100067 Investors following TCS. Share this News with them.

0

Like this story, share it with millions of investors on M3

Hold TCS; target of Rs 1203: BP Equities

BP Equities has recommended hold rating on Tata Consultancy Services (TCS) with a target of Rs 1203, in its January 20, 2012 research report.

Post your opinion here

 

0

Tweet

Share on Tumblr

RELATED NEWS Buy Dish TV; target Rs 72: PINC Research Hold HDFC Bank; target Rs 510: Emkay Buy VST Tillers Tractors; target Rs 518: Firstcall Research ALSO READ See previous views by BP Equities 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?

BP Equities has recommended hold rating on Tata Consultancy Services (TCS) with a target of Rs 1203, in its January 20, 2012 research report.

"In Q3 FY12 TCS Ltd. delivered decent performance both on the top line and net profits front, more or less in line with ours as well as the street's expectations. Operating margins expanded 213 bps against our expectation of 255 bps expansion. Management signals moderate demand environment for IT services and believes that more than expected recovery in US, on going uncertainty in Europe will not significantly impact outsourcing for CY12E however discretionary spending might face delays in decision making and will be under pressure going forward. Budgets are expected to be finalized by mid Feb 2012 and management commentary did not impress much. TCS won 10 large deals and we expect strategic deal wins in the telecom vertical will help it gain traction in coming quarters. Company maintains its robust hiring guidance of ~60K employees for FY12E and already given ~35K offers for FY13E."

"TCS revenues grew 36.6% Y-o-Y and 13.5% Q-o-Q to Rs 132.0 bn aided by a volumes growth of 3.2% Q-o-Q (v/s ~3.1% for Infosys), INR depreciation benefit of 8.95% Q-o-Q, 198 bps Q-o-Q due to constant currency realization negatively impacted 64 bps Q-o-Q due to offshore shift. USD revenues were up 2.4% Q-o-Q and 20.6% Y-o-Y to $2.59 bn however on constant currency q-o-q growth was 4.5%. Net profit came in at Rs.28.86 bn, up 18.4% Y-o-Y and 23.0% Q-o-Q offset by huge forex losses of Rs 3 bn. EPS for the quarter stood at Rs.14.75, up 23.0% Y-o-Y and 18.4% sequentially. OPM contracted 98 bps Y-o-Y and 213 bps Q-o-Q to 29.2% driven 282 bps by currency and 45 bps by others offset by a negative impact of 94 bps due to rate productivity ,10 bps by shift to GDC, and 10 bps by provision for bad debts. EBITDA margins expanded 80 bps Y-o-Y and 191 bps sequentially to 31.0%. Utilization (excluding trainees) contracted 110 bps sequentially (as per expectation) in the quarter and stood at 82.0%. Management is comfortable with utilization of 82-84%, however we expect that utilization levels to be range bound with negative bias. The NPM contracted 242 bps Y-o-Y but expanded 90 bps Q-o-Q to 21.0%, primarily due to rupee depreciation and offset by lower other income (on account of higher forex losses of Rs 3 bn in the quarter)."

"Management has maintained its guidance to hire ~60K gross employees in FY12E and will hire ~45K employees FY13E. The company added 18,907 and 11,981 employees on gross and net basis, taking the total employee count to 226,751 at the end of Q3 FY12. Management expects IT budgets to be flattish for CY12E however discretionary spending will be under pressure, overall management comment failed to excide the street. Revenues from BFSI/manufacturing/retail/healthcare were up 13.0%/13.5%/15.4%/13.5% Q-o-Q. Telecom which had been under pressure declined 70 bps Q-o-Q in Q3FY12 to 10.0% however strategic deals in the telecom vertical will fuel growth going forward. Revenues from ADM, IMS and BPO grew 11.7%/25.3%/12.5% sequentially, while discretionary services like Enterprise services, Global consulting and assurance services grew 16.6%/22.2%/13.5% sequentially."

"Management is optimistic about the overall demand environment and expects budgets to be finalized by Feb 2012 end. It has maintained its guidance to hire 60K employees in FY12E, while maintaining utilization levels at 82-84% and expects pricing to be stable. However we expect global uncertainty will put pressure on company's top line growth for FY13 in USD terms however rupee deprecation will boost top line. We expect the company top line to grow 32.6% and 22.4% Y-o-Y to Rs 495.1 bn and Rs 606.1 bn in FY12E and FY13E respectively. We assume margins to decline ~17 bps Y-o-Y in FY12E to 29.8%. We expect that the stock is fully valued and significant upside seems limited from these levels. We maintain our "HOLD" with a price target of Rs 1,203 18x times FY13 earnings. The company now trades at a P/E of 19.8.x and 16.2x FY12E and FY13E earnings," says BP Equities research report.

Bodies Corporate holding more than 50% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment