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Last Updated : Apr 25, 2012 11:00 AM IST | Source: Moneycontrol.com

Buy TCS; target of Rs 1230: PLilladher

Prabhudas Lilladher is bullish on Tata Consultancy Services (TCS) and has recommended buy rating on the stock with a target of Rs 1230 in its April 23, 2012 research report.

 
 
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Prabhudas Lilladher is bullish on Tata Consultancy Services (TCS) and has recommended buy rating on the stock with a target of Rs 1230 in its April 23, 2012 research report.


“Tata Consultancy Services (TCS) reported Q4FY12 results in line with our consensus/expectations. The management indicated no worrying signs from clients’ IT budget perspective. Moreover, they indicated some of the delays that they had witnessed at the beginning of the last quarter are allaying away. We continue to believe that the company has fully utilized its operating leverage. However, due to recent correction in stock-price, we upgrade it to ‘BUY’, retaining a TP of Rs1,230.”


“TCS reported Q4FY12 results in-line with our consensus/expectation. Revenue grew by 0.4% QoQ to Rs132.59bn (PLe: Rs132.47bn; Cons: Rs132.74bn) and 2.4% QoQ in USD terms, led by better-than-expected volume growth of 3.2% QoQ (PLe: 2.1%). EBIT margins eroded by 155bps (PLe: 117bps, Cons: 138bps) to 27.7%. EPS grew by 1.6% QoQ to Rs14.98 (PLe: Rs14.67, Cons: Rs14.75). TCS has given hiring guidance of 50k for FY13 (43.6k offers already made). The current attrition rate adds up to 8-10% volume growth for FY13 with this guidance. However, utilization (incl. trainees) at 71.3% (same level of Q1FY10) gives room for growth despite weak hiring. We still view growth in our assumption at risk.”


“TCS’ top 10 clients reported muted growth. We believe that the growth from top 10 clients has peaked as mining of the top clients is already at an extreme. As in our previous note (“In‐line quarter, no room for upside”, January 17, 2012), we highlighted that FY11‐12 growth was more predictable (existing clients), helping them to operate at high utilization. We believe that onsite would increase as growth would come from new clients, impacting margins in‐line with our hypothesis. Also, unpredictable growth would require TCS to keep utilization at sub 80% level We expect 14% volume growth, with positive pricing bias for FY13. However, we expect margin headwinds to dampen EPS growth. We upgrade it to ‘BUY’ rating, with a TP of Rs1,230, 19x FY13E earnings estimate. We are valuing TCS at 5% premium to Infosys,” says Prabhudas Lilladher research report. 


Public holding more than 90% in Indian cos


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First Published on Apr 25, 2012 10:52 am
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