Accumulate TCS; target Rs 2500: Dolat Capital
Dolat Capital is bullish on Tata Consultancy Services (TCS) and has recommended 'Accumulate' rating on the stock with a target price of Rs 2500 in its October 15, 2013 research report.
October 16, 2013 / 18:38 IST
Dolat Capital's report on Tata Consultancy Services (TCS)
"TCS, post the earnings we turn incrementally positive on TCS in view of its sustained confident stance on the business outlook supported by its confidence on its client’s budgets, strong deal intake across the verticals/geos, deal win across traditional as well as digital/SMAC areas and also view on the discretionary demand. We maintain TCS as our Top Pick among Tier I IT space and expect it to maintain its outperformance over peers in the near term given its portfolio performance factor with a Target price of Rs 2500 valued at 23x of its FY15E earnings, inline with 1 year Fwd multiple - raised upward from 19x given the current re-rating of sector for its earnings visibility and favorable fundamentals viz US recovery and Rs depreciation.""TCS’s delivered another set of strong numbers with a topline growth of 17 percent driven by 7 percent volume growth at Rs 209bn. OPM up 310bps QQ at 30.1 percent driven by Fx gains of 300bps and 40bps efficiency gains covering for integration expenses. PAT at Rs 47bn (DE at Rs 44bn). TCS has earlier indicated better H1 over H2 in terms of demand and maintains its view largely and expects Q3 to be impacted by seasonal furlough led impact in verticals such as Manufacturing/Hi-Tech. It has bagged 8 large deals across all its verticals during the quarter. We have built in 8 percent volume growth for H2 over H1 (16.5 percent growth YoY over H1FY13) in line with its performance in FY13 wherein it managed a 7 percent growth in H2 over H1FY13 after clocking a 13 percent YoY growth in H1.""It is likely to exceed its desired OPM band of 26-28 percent given the INR/USD of 60+ and sustained efficiency gains by the company through Fixed pricing and utilization leverage (all time high of 84 percent+). We have built in OPM of 29/28 percent for FY14/15E respectively."Valuation: "The company is witnessing higher demand for its service delivery model and better/faster closure on deals across the verticals and geographies. The financial performance has been rising high over and above peers at all parameter reflecting the delivery strength, focused client strategy along with disciplined marketing investments. We believe it continues to remain best player among the Tier I space to leverage the improving demand outlook and thus we maintain TCS as our Top Pick along with Infosys among Tier I IT players with a Target price of Rs 2500 valued at 23x of its FY15E earnings (in line with current valuations). Accumulate the stock," says Dolat Capital research report.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. 
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