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Analyst Research Report Snapshot


Tata Consultancy Services (TCS) - Qtr. Update - Dated - October 19, 2012




Axis Capital Limited


20 Oct 2012





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Volumes and deal momentum continues: Higher than expected volume growth (5% QoQ vs. our est. of 4%) along with stable pricing, 9 large deal closures across verticals, and management’s confidence on timely deal closures/CY13 IT spend indicate continued growth momentum through FY14. Our FY14E revenue growth of 16% remains intact. Key verticals - BFSI, Manufacturing/Hi-Tech and Retail (aggregate revenue of 70%) – grew 4-9% QoQ. Management confident of 27% EBIT margin target: EBIT margin declined 75 bps QoQ on higher onsite work (translation engagements) and Systems Integration projects in India. Q3 may see softness due to December seasonality. However, we maintain FY13E margin at 27% as we expect transition of work back to offshore locations, higher returns from investments in industry platforms/ solutions, and improvement in utilization rates. Other Q2 highlights  INR revenue growth of 5.1% QoQ was led by volumes (~5%), constant currency realization (-49 bps), currency movement (+22 bps) and higher onsite revenue (+38bps)  EBIT margin was impacted by INR (-12 bps), onsite movement (-72 bps), and SG&A (+9 bps)  FY14 campus hiring target at ~25K; 12K offers given till date No material change to our estimates, Maintain HOLD: Our FY13E/ FY14E earnings estimates remain largely intact at Rs 70/Rs 78 respectively. Our target price of Rs 1,332 (17x FY14E EPS), implies upside of 3% from CMP. At CMP of Rs 1,290, the stock trades at 19x FY13E EPS of Rs 70 and 17x FY14E EPS of Rs 78. Our estimates are based on INR/USD of Rs 53.3 for FY13E and Rs 50.4 for FY14E and INR/USD assumption for H2FY13E at Rs 52. Regards, Priya Rohira (Executive Director – IT & Telecom) Institutional Equity Research ENAM Securities Pvt Ltd. Tel.: + 91 22 4325 1104 Avinash Singh (Sr. VP – IT) Institutional Equity Research ENAM Securities Pvt Ltd. Tel.: + 91 22 4325 1119

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