23 August, 2014 09:02 IST
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Premium valuation forcing most brokers to remain neutral on TCS
Source: IRIS (22-OCT-12)
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India's largest software exporter, Tata Consultancy Services (TCS) reported better-than-expected quarterly results for the quarter ended September 30, 2012.

Consolidated earnings grew at 7.1% sequentially and 44% on year-on-year basis to Rs 35.12 billion. Analysts had on an average expected profit of Rs 33.34 billion. Revenues, on the other hand, climbed 5.1% sequentially and 34.3% on year-on-year basis to Rs 156.21 billion. 

In terms of US dollar, consolidated earnings rose 6.4% sequentially and 21.8% on year-on-year basis to USD 643 million. Revenues, on the other hand, went up 4.6% sequentially and 13% on year-on-year basis to USD 2.85 billion. Analysts were expecting revenues to grow at 4.1% to USD 2.84 billion.

We have collated views of analysts at various brokerages on how they view numbers and outlook on these stocks in the coming future:

Barclays Capital:

TCS's USD revenue growth of 4.6% q/q came well ahead of our expectations of 4%. Given company's size, and weak revenue performance of peers (Infosys and HCL Tech), TCS surprised by exhibiting an acceleration in growth compared with the June quarter. Margins were slightly below estimates due to productivity losses and onsite shift as large projects ramped up but should recover as these ramp ups complete. Deal pipeline remains robust and management was optimistic about business environment. We incorporate new currency estimates and raise our FY13/14 EPS by 1.5%/3.1%. Our 12 month price target is increased to Rs 1,325. However, rather expensive valuations force us to maintain our Equal Weight rating.

Nomura:

TCS's 2Q was a reassuring quarter on growth sustainability, with, a bullish demand outlook and indications of a pickup in discretionary spending; broad based growth across segments; and strong client mining and large deal successes. The similarity of results and commentary at HCLT, TCS and Accenture over the past few quarters indicate to us that market share gain focused companies have benefited from both cost save/efficiency initiatives at clients and any associated reallocation towards change-the-business work. In this regard, we expect TCS to continue to outperform INFO, though absolute performance might be capped by valuations at 17x FY14F. We maintain our Neutral rating.

Emkay:

TCS’s operating performance missed expectations a tad with inline revenues albeit lower margins (-70 bps QoQ to 28.4%). Profit beat aided by forex gains and lower taxes. Operation metrics performance remains solid with growth broad based across verticals/geographies. Management remains confident of beating industry growth citing normal decision making, closure and ramp up of large deals. Company also indicates some pickup in discretionary spending. We tweak our FY13E earnings higher by ~1% to Rs 70.3 while our FY14E earnings remain unchanged at ~Rs 75. While TCS does continue to perform consistently better than peers in a difficult macro environment, premium valuations at ~18.3x/17.2x FY13/14E P/E capture the same in our view. We retain HOLD with a revised TP of Rs 1,200.

Motilal Oswal:

TCS 2QFY13 volume growth of 5% QoQ was a positive surprise, above our est of 4% QoQ growth, driving above-est USD revenue growth of 4.6% QoQ to USD2,853m (v/s est of 4.1%). Nature of growth remains impressively broad-based. We expect TCS to report revenue CAGR of 15.6% over FY12-14 and EPS CAGR of 20.3% over this period. Valuations at 18.5x FY13E and 16.4x FY14E EPS, maintain Neutral with a target price of Rs 1,340, based on 17x FY14E EPS.

ICICIdirect:

Q2FY13 revenues grew 4.6% QoQ to USD 2.85 billion and were ahead of our USD 2.83 billion estimate (3.8% growth). Revenue growth of 4.8% QoQ in constant currency (CC) was heartening and was ahead of 4% in Q1. We value TCS at Rs 1,370 i.e. at 19x our CY13 EPS estimate of Rs 71.8 and maintain our HOLD rating.

Angel Broking:

TCS reported yet another set of healthy quarterly result, outperforming the street's as well as our expectations on the revenue as well as the profit front. The most remarkable highlight of the result was the 5.0% qoq volume growth. The dollar revenue grew by 4.6% qoq to USD 2,853 million. We value TCS at 18.5x FY2014E EPS of Rs 76.2 with a target price of Rs 1,410 and maintain our Accumulate rating on the stock.


Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.



Tata Consultancy Services Limited   (Q,N,C,F)*


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* Q - Quote , N - News , C - Chart , F - Financials
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