Buy TCS; target of Rs 2500: Angel Broking

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Angel Broking's report on Tata Consultancy Services (TCS)

"TCS, 3QFY2013 has traditionally been a relatively soft quarter in terms of volume growth for IT companies and this year is expected to be no different. We believe TCS is likely to deliver a 2.7-3 percent qoq volume growth in 3QFY2013 as compared to ~7 percent in 2QFY2013 because of lower working days and furloughs seen. Revenue growth in 3QFY2013 will be impacted due to the following factors - a) lesser working days due to holidays, b) furloughs across industries and c) lower spending in verticals such as retail, manufacturing and in services like consulting and enterprise solutions. TCS’ revenue from India business is likely to be weak in 3QFY2013 due to hit in IT spends on account of the ongoing election process. Reported USD revenues will be aided by ~100bp qoq impact of cross-currency gains. The Management expects the US and the UK to show muted growth while other geographies like Europe, Asia Pacific and Latin America are likely to grow ahead of the company average."

"We expect TCS to outperform the industry on revenue growth due to its superior market reach and excellent execution capabilities. We expect TCS to grow its USD revenues at a CAGR of 15.5 percent over FY2013-15 and EPS to grow at a CAGR of 27 percent during this period. TCS has executed well over the past many quarters and currently trades at 20.7x FY2014E and 17.4x FY2015E EPS. We believe TCS deserves the premium multiples given its consistency in performance, and leadership in growth/profitability. We maintain our Buy rating on the stock with a target price of Rs 2,500," says Angel Broking research report.

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