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Tata Consultancy Services Ltd. (TCS) | Q2FY14 Result Update




IndiaNivesh Securities Pvt Ltd


16 Oct 2013





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Tata Consultancy Services Ltd. (TCS) | Q2FY14 Result Update Above Expectation Performance; Limited Upside Potential: Downgraded to HOLD Q2FY14 Result Highlights | Tata Consultancy Services Ltd (TCS) Q2FY14 performance was above our expectations on all fronts. USD revenues grew by 5.4% Q/Q to US$3,337 mn (INSPL est: US$3,315mn) led by 7.3% Q/Q volume growth. The company’s recent acquisition, AlTI SA contributed 1.2% ($39 mn) to the overall revenue. Excluding ALTI SA, organic revenue grew by 4.2% Q/Q to $3298 mn on back of 6.2% volume growth. Rupee revenue increased 16.6% Q/Q to Rs.209.7bn (INSPL est. Rs207.6bn) driven by volume (+7.3%), realization (+0.9%) and currency (+10.6%), partially impacted by shift in onsite mix (-0.4%). EBITDA margin expanded ~302bps Q/Q to 31.6% due to positive forex benefit (+310 bps), partially offset by integration of low margin ALTI SA. Net profit grew 20.9% Q/Q to Rs46.3bn (INSPL est: Rs45.7.0bn). Net profit margin expanded 79 bps Q/Q to 22.1% driven by strong EBITDA margin. The company reported the forex loss of Rs.3,773 mn as compared to Rs.1,044 mn in Q1FY14. Management expect FY14 to be a better year on back of improving discretionary business cycle and strong deal pipeline. Valuations: At CMP of Rs. 2,218, the stock is trading at 24.0x FY14e and 21.0x 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 business intelligence v/s global peer (Accenture) remains a positive surprise. However, we see limited upside potential from here on; hence downgrade our rating to HOLD from BUY but revised our target price upward to Rs.2,430 (23.0x FY15E). (Previous TP Rs.1,829 | Achieved).

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