Accumulate TCS; target of Rs 1300: Emkay

http://www.moneycontrol.com/news/recommendations/accumulate-tcs-targetrs-1300-emkay_566140.html

mkay Global Financial Services is bullish on Tata Consultancy Services (TCS) and has recommended accumulate rating on the stock with a target price of Rs 1300 in its July 15, 2011 research report.
“Tata Consultancy Services (TCS) reported an inline op performance with a 7.5% rev growth to US$ 2,412 mn (Est of ~6.2% QoQ) while mgns declined by ~230 bps QoQ to 28.1 %( est of ~200 bps) impacted largely by wage hikes implemented during the quarter (~250 bps hit). Profits at Rs 23.8 bn (flat QoQ, +28% YoY) came in ahead of est. (Rs 22.7 bn) helped by higher other income. Op metrics performance was solid with co reporting broad based growth across verticals (Hi Tech +15.4% QoQ, Telecom+14.3% QoQ, retail +11.3%, BFSI +5.8% QoQ), service lines as well as along geographies ( US +6.5% QoQ, Continental Europe +7.5% QoQ, and UK +6.1% QoQ). While top 5/10 clients grew lower than co average for the 2nd quarter in a row at ~3.4/4.4%, non top 10 clients revenues grew by ~8% sequentially. We note that the company increased the number of US$ 50 mn+ clients to 33 (V/s 27 as on March’11 end) and has a higher number of US$ 50 mn+ clients V/s Infy for the 1st time since Dec’09 qtr.”
“Co mgmt remains upbeat about demand despite the uncertain macro environment as it indicated that it has won 10 large deals during the quarter (well spread across verticals/geographies) citing further about a well distributed large deal pipeline (4 large deals each across US/UK and Europe,3 in Asia Pac). Co expects discretionary spending to pick up through FY12 and expects pricing upticks during FY12. Mgmt indicated that although visa rejection rates had increased over the year, it does not see any material negatives here. Co continues to retain a 60k gross hiring target for FY12 and expects to see uplift in margins ahead (confidence in running utilization ex trainees at 82-84% with pricing and revenue leverage being the primary levels ahead).”
“We raise our FY12/13E earnings by ~2.4%/1.5% to Rs 52.5/62.6 driven by higher other income as we factor in higher interest yields and marginally higher US$ revenue estimates. Retain Accumulate with a revised March’12 target price of Rs 1,300. Expect stock to react positively given the weak expectations on the street ahead of results,” says Emkay Global Financial Services research report.
What stocks does Morgan Stanley hold?
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.