Accumulate TCS; target of Rs 2300: P Lilladher

Prabhudas Lilladher's report on Tata Consultancy Services (TCS)

Tata Consultancy Services (TCS), Q3 seasonality due to holidays (planned and unplanned), furloughs etc is expected to impact the revenue momentum from the US and the UK. The verticals like BFSI, Retail, Telecom, Hi-tech etc would also be impacted due to seasonality. In terms of service line, Consulting, Application Development etc will be impacted.

The seasonality will not have an impact on geographies like Europe (ex UK), Middle East, APAC, and LatAm, along with verticals like Life Sciences, Media & Entertainment, Travel & Transportation etc.. Also, maintenance (run-thebusiness) service offerings would remain unaffected due to seasonality. Q3FY14 is likely to witness crosscurrency tailwind of 100bps, whereas, Rupee appreciation of ~1 percent against USD is likely to have headwind of 25-30bps on margin. The company is expected to have a forex gain of Rs1.5-2bn against forex loss of Rs3.77bn in Q2FY14.

"Beginning on a positive note" November 22, 2013), the management said that IT budgeting session began on a positive note due to stable macro. According to the company, the order-book adjusted for seasonality has witnessed an uptick. We reiterate "Accumulate" with target price of Rs 2300, 20x FY15E earnings estimates," says Prabhudas Lilladher research report.

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