All okay with TCS results, only a quarterly issue: Antique

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All okay with TCS results, only a quarterly issue: Antique

After its announcement of below expectation results for the second quarter on Monday, Tata Consultancy Services shares crashed over 7% on Tuesday. However, Sandip Agarwal, IT analyst at Antique Stock Broking says the TCS results have 'nothing negative'.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ News and Notices about TCS See interviews with TCS Management See what other Experts & Brokerages are saying about TCS See previous Results of TCS TCS BSE | NSE 31/05/12 Are Mutual Funds betting on TCS? Other Stocks in this news HCL Technologies | Wipro | Infosys |

After its announcement of below expectation results for the second quarter on Monday, Tata Consultancy Services shares crashed over 7% on Tuesday. India's top software services exporter's performance in Q2 has raised doubts across the Street.

However, Sandip Agarwal, IT analyst at Antique Stock Broking says the TCS results have 'nothing negative'. "It is more of a quarterly variation rather than anything else," he says, in an exlcusive interview to CNBC-TV18.

Further, Agarwal maintains that the present scenario is different from 2008, primarily because it was more sudden then and now it is something that has been built in and taken into account by the clients. "We don't see much of a decline on the demand side or anything negative on the outlook side as well," he adds.

Below is an edited transcript of Sandip Agarwal's interview to CNBC-TV18. Also watch the accompanying video.

Q: TCS is down, what did you make of the numbers and what is your price target for this stock?

A: If you see the performance as such the volume growth has been very good at 6.2%. The disappointment on the revenue front has come from cross currency impact of 50 bps and around 95 bps price realisation impact.

Now management has said that price realisation is more an issue of mix rather than something else so they are seeing the environment to be stable, so that takes around 150 bps from the revenue growth part and if you take the cost part we were expecting a margin expansion of 200 bps on quarter over quarter basis primarily and the actual scheme at 95 bps so we missed by 105 bps. It was primarily because the company has added around 12,580 employees in this quarter on net basis.

They have got a cost for that but they have not got the corresponding revenues in this quarter which will flow in the next quarter. We were expecting net addition of 7,000-8,000 so that is another part where an impact of 60-70 crore has come. If you take these two into account then probably they are down by 200-250 crore versus our estimate.

So that is the part of the reason but if you see otherwise from the operating matrix side, utilisation levels have been maintained at 83.1 and even sounds optimistic about it going forward also, attrition has come down sharply. So, if you see the operating matrix has done quite well and the management itself has said that they have been travelling extensively and they are not seeing any budget cuts or negative impact on the demand side.

We have been maintaining that this situation is different than 2008, primarily because that was more of a sudden and this is something which has been built in, taken into account by the clients so we don't see much decline on the demand side or anything negative on the outlook side as well.

On the operating matrix side if you take the kind of net addition that they have done in this quarter, that impact is out and the numbers are good. So, it is more of a quarterly variation rather than anything else. We don't see anything negative in the results.

Q: What did you make of HCL Tech 's numbers and how would you explain the 7% down reaction on that stock?

A: We were negative on HCL Tech primarily on account of wage hike and we strongly believe that the ERP space which contributes around 20% of the business is at a very high end consultancy kind of business which always will be under pressure in uncertain macro. Hence, to that extent we were forecasting a good growth on the revenue part but it has come below even our estimates.

There is more problems on the growth side, if you see the growth has been much lower than what it was expected it came just around 4.5% in constant currency around 5.2-5.1%. The numbers are more disappointing in case of HCL Technologies versus TCS if you see from that perspective. So, we think that the BPO business if you see in this quarter also had some pressure; we think BPO and ERP will continue to be challenging going forward also. We have hold rating on HCL Tech as of now and we maintain that rating.

Q: From the top four which one is your top pick?

A: We have Infosys as our top pick followed by TCS and then Wipro and HCL Technologies.