Friday, July 16, 2010

TCS: Rock Solid Performance

Tata Consultancy Services

Reco: ACCUMULATE

CMP: Rs780

Target Price: Rs890

Rock solid performance, retain ACCUMULATE

·      Revenue growth performance impressive at ~6.4% QoQ to US$ 1,794 mn. Superior revenue, margin performance (down by ~60 bps QoQ) drives in line profits despite higher taxes.

·      Strong volume growth at ~8% QoQ. TCS shows more broad based service/vertical wise growth V/s Infosys. TCS's results validate positive demand momentum for the sector.

·      Despite street concerns (including ours) on sustainability of superior margins, co continues to execute well. Results should drive resumption of valuation convergence trade. 

·      Upping FY11E/12E EPS by ~3.5% to ~Rs40.9/ 44.5 driven by marginal increase in revenue est., US$/INR reset to Rs46/$(V/s Rs45/$ earlier). ACCUMULATE with revised TP of Rs890.

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