Dear All,
Forwarding you the Result Update on TCS with an Accumulate recommendation and a Target Price of `1,349
For 4QFY2011, TCS reported modest set of numbers. However, growth outlook for FY2012 stood very promising with a target of 60,000 gross employee additions. TCS continues to remain our preferred pick in the IT pack. We maintain our Accumulate rating on the stock with a target price of `1,349.
Quarterly highlights: For 4QFY2011, TCS posted revenue of US$2,244mn, up 4.7% qoq, on the back of modest volume growth of 2.9% qoq, pricing uptick of 0.8% qoq, cross-currency benefit of 0.9% and higher onsite effort aiding a 0.1% increase in revenue. EBIT margin declined only by 6bp to 28.0%, despite strong gross addition of 19,324 employees, which primarily led to a 200bp drop in the utilisation level (including trainees) to 75.1% along with a seasonally weak quarter. PAT came in at `2,402cr with 3.1% qoq growth.
Outlook and valuation: Management highlighted that the demand environment is upbeat and it is chasing 20 large broad-based deals. Management undertook strong hiring in 4QFY2011 and gave robust hiring guidance of 60,000 gross additions for FY2012 and expects a like-to-like pricing increase in 2HFY2012. Even with such aggressive hiring plans, it targets to maintain utilisation levels excluding trainees at 82–84% in FY2012. Thus, over FY2011–13E, we expect the company’s revenue to post a 21.1% CAGR (INR) and a 23.3% CAGR (USD), surpassing the USD$10bn revenue mark in FY2012 itself. On the back of 1) strong growth expectations, 2) headroom to scale up utilisations including trainees to 76% and 77% in FY2012 and FY2013, respectively, and 3) SGA expense optimisation as a strong lever, we expect the company to swiftly counter the headwinds of aggressive wage hike of 12–14% offshore and 2–4% onsite as well as INR appreciation. We expect EBIT margin’s downside to be limited to 105bp (yoy) and settle at 26.8%. We value TCS at 22x (5% premium to Infosys) FY2013E EPS of `61.3, i.e., a target price of `1,349 and maintain an Accumulate view on the stock.
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If you have any further queries, feel free to call us on 022 39357600, Extn: 6864 / 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6864,6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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