[Investors Please Listen] TCS Q2FY10 Result Update ; Stellar show yet again ; ACCUMULATE ; Target : Rs 655

Tata Consultancy Services

 

Stellar show yet again

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ACCUMULATE

 

CMP: Rs 608                          Target Price: Rs 655

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TCS reported revenues of US$ 1,538 mn (+3.9% QoQ) ahead of estimates (Emkay est at US$ 1,517 mn).  Volume growth was ~5% QoQ with revenue performance exemplary yet again in the wake of significant onsite to offshore/GDC shift (onsite % of revenues declined by ~170bps QoQ to 42.7%, note that onsite % of revenues has reduced by ~1000 bps over the past 4 quarters)

Operating margins increased by ~150 bps sequentially to 28.7% (our estimates factored in ~10 bps expansion), and were the highest ever in the past 15 quarters

Profits at Rs 16.2 bn (+6.8% QoQ,+23.6% YoY) beat expectations driven by higher revenue/margin performance and lower taxes.

Up FY10/FY11 EPS estimates by ~5%/1.5% to Rs 32/Rs 35 respectively.

Expect continuation of TCS's relative out performance and narrowing of valuation discount to Infosys.

Maintain ACCUMULATE with a revised target price of Rs 655 ( V/s Rs 615 earlier)  

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