Hold TCS; target Rs 1,217: KRChoksey
KRChoksey has maintained hold rating on Tata Consultancy Services (TCS) with a target price of Rs 1,217 in its April 24, 2012 research report.
April 26, 2012 / 17:59 IST
KRChoksey has maintained hold rating on Tata Consultancy Services (TCS) with a target price of Rs 1,217 in its April 24, 2012 research report.
"Tata Consultancy Services (TCS), the volume growth of 3.3% QoQ in Q4 FY12 was significantly higher than our and consensus expectation; supported by momentum in run-the-business segment. The management expects normal trend in spending by the clients in CY12E and hence believe that Q1 FY13 and Q2 FY13 will register higher growth rate than seasonally weak quarters i.e. Q3 FY13 and Q4 FY13. Moreover, they expect growth will be broad based i.e. across industries and geographies. Moreover, they expect growth rate in FY13E to be upward of NASSCOM guidance range of 11%-14%. We believe slowdown in Infosys is more company specific trend rather than industry related issues and the companies (such as TCS and HCL Technologies) which are offering strong value proposition in run-the-business segment will continue to outperform peer sets in terms of revenue growth. However, we believe revenue growth outperformance in FY13E is already reflected in today’s stock run-up and there is limited upside left in the stock in near term.""On back of the higher volume growth than peer sets in Q4 FY12 supported by strong momentum in „Run the Business’ segment; the management sounds up-beat about FY13E growth outlook and expects to maintain its trajectory of faster growth rate than industry average in FY13E. Moreover, they expect the revenue growth to be broad based i.e. across geographies and industries (including BFSI and telecom) in FY13E. Further, they expect discretionary spending to pick up from Q1 FY13E onwards. The management expects quarterly growth trend in FY13E to follow usual pattern i.e. Q1 FY13E and Q2 FY13E to be strong quarter; whereas Q3 FY13E to be soft quarter on back of holidays and Q4 FY13E to be weak due to initiation of budget cycle. The stronger growth in H1 FY13E indicates that the clients’ spending is on track and will be in line with their IT budget for CY12E.""We believe the company has enough levers at its disposal to mitigate impact of wage hike (~8% for offshore based employees and ~3% for onsite based employees) which will be around 200 bps in FY13E. The primary lever will be improvement in utilization rate (excluding trainees) which has reached the lowest level in the last 10 quarters. The management has indicated that it is planning to hire around 50,000 employees in FY13E as compared to 70,000 addition in FY12, which will support its plan to improve utilization rate from the current level of 80.6% to 83.5% by end of FY13E. We believe that the company’s higher growth rate than industry’s average in FY13E and stable EBTIDA margins in FY13E is already reflected in its premium valuation i.e. around 15% higher P/E multiple to Infosys forward P/E multiple; hence we maintain our "HOLD" recommendation on the stock with a price target of Rs. 1,217 by assigning multiple of 18 times to its FY13E EPS of Rs. 67.6," says KRChoksey research report. Shares held by Financial Institutions/Banks 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 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
