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Analyst Research Report Snapshot


Tata Consultancy Services (TCS) - Qtr. Update - Dated - October 15, 2013




Axis Capital Limited


17 Oct 2013





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TCS raised the bar by delivering a strong quarter (in line with our expectations):  USD revenue growth of 5.4% QoQ (constant currency 6%) led by strong volume growth of 7%; highest in last 9 quarters  Margin expansion by 314 bps to 30%  8 large deal wins during the quarter  Strong client mining visible with USD 100 mn category seeing three additions taking the tally to 22 clients (Q1FY12: 10 clients) Management is confident of maintaining margin at 26-28% with a stable currency. We expect TCS to record 16% CAGR in USD revenue terms over FY13-15E. However, we revise our rating to HOLD with a TP of Rs 2,228 (20x FY15E EPS of Rs 111) as valuation is rich and factors in most positives. At CMP of Rs 2,218, the stock trades at 24x FY14E EPS of Rs 92 and 20x FY15E EPS of Rs 111. Key highlights  Management indicated demand environment continues to be strong and expects discretionary spends to improve. However, Q3 is likely to be impacted by the furloughs (seasonal shutdown in Hi-tech and manufacturing)  Enterprise solutions recorded 8% sequential growth and contributed 21% to incremental revenue. Momentum is likely to continue driven by spends in cloud, mobility and big data. On the core services, Application Development and Maintenance (ADM) continued on a strong trajectory recording 4% sequential growth and contributed 31% to incremental revenue  Vertical performance was led by BFSI contributing to 45% followed by Retail (12% of incremental revenue)  Strong revenue growth of 5.4% QoQ was led by volumes (+7%) – Alti acquisition contributed 1.2% and organic volume growth was 6% QoQ. Margin expanded by 314 bps to 30% largely driven by INR depreciation (300 bps) and operating efficiencies  North America and Continental Europe recorded strong performance and contributed 72% to incremental revenue. Management stated TCS is not witnessing any slowdown in US; Europe has attained significant scale and would be a key growth driver  Management indicated there has been no negative commentary on CY14 budgets from clients and the company remains positive on demand environment Regards, Priya Rohira (Executive Director – IT & Telecom) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1104 Vishal Desai (AVP – IT) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1119

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