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Tata Consultancy Services Ltd. (TCS) | Q1FY14 Result Update




IndiaNivesh Securities Pvt Ltd


19 Jul 2013





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Tata Consultancy Services Ltd. (TCS) | Q1FY14 Result Update Betting expectations on all fronts...Upgraded to BUY Q1FY14 Result Highlights: Tata Consultancy Services Ltd (TCS) Q1FY14 performance was above our expectations on all fronts. USD revenues grew by 4.1% Q/Q to US$3,165 mn (INSPL est: US$3,130mn) led by 6.5% Q/Q volume growth, partially offset 1.68% Q/Q decline in the pricing. Rupee revenue increased 9.5% Q/Q to Rs.179.9bn (INSPL est. Rs174.3bn) driven by volume (+6.1%), exchange benefit (+4.6%), and onsite shift (+0.34%), partially offset by decline in the realization (-1.6%). EBITDA margin expanded ~50bps Q/Q to 28.6% due to forex benefit (+161 bps) and decline in SG&A expenditure (+96 bps), partially offset by wage hike (-172 bps) and pressure on realization (-35 bps). Net profit grew 5.9% Q/Q to Rs38.3bn (INSPL est: Rs38.0bn). However, net profit margin contracted 71 bps Q/Q to 21.3% led higher forex loss. The company reported the forex loss of Rs.1044 mn as compared to forex gain of Rs.1,055 mn in Q4FY13. Management expect FY14 to be a better year on back of improving discretionary business cycle and strong deal pipeline. Valuations: At CMP of Rs. 1660, the stock is trading at 20.0x FY14e and 17.8x FY15e EPS estimate. We like the company’s quarterly performance on all fronts. Additionally, robust FY14E demand outlook, strong hiring numbers (v/s Infosys) and large size deal wins increase revenue visibility going-ahead. Further, confidence to close FY14 $-revenue growth ahead of industry looks encouraging. Outperformance in discretionary and global consulting vertical v/s global peer (Accenture) remains a positive surprise. We upgrade our rating to BUY from HOLD and revised target price to Rs.1829 (19.6x FY15E) on TCS. (Previous TP Rs.1566 | Achieved).

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