Sharekhan is bullish on Tata Consultancy Services (TCS) and has recommended buy rating on the stock with a target of Rs 2684 in its July 17, 2014 research report.
"TCS has started FY2015 on a strong note with a 5.5% sequential growth in revenues (to $3,694 million vs our estimate of $3,690 million), volume growth of 5.7% and constant-currency growth of 4.8%. The EBIT margin was down by 285BPS QoQ to 26.3% (our estimate was 26.9%) because of wage hikes, higher depreciation (a one-time charge of Rs174.6 crore, on account of a change in useful life of assets) and the rupee's appreciation against the dollar. Excluding the one-off depreciation impact, the EBIT margin for the quarter stood at 27%. The net income for the quarter was down by 4.5% QoQ and 27% YoY to Rs5,057.8 crore (our estimate was Rs5,004.5 crore)."
"The management reaffirmed that FY2015 would be stronger than FY2014 (revenues had grown at 16.2% YoY in FY2014 in dollar terms). During Q1FY2015 the company signed seven large deals and maintained the hiring target of 55,000 employees for FY2015. The management indicated the revenues from Mitsubishi Corp. merger will be lower than expected because of the yen's depreciation against the dollar (revenues from the merger are going to accrue from Q2FY2015). Being the undisputed leader among the Indian IT incumbents, TCS continues to set higher benchmarks for the sector and a solid start in Q1FY2015 clearly points to the strong momentum for FY2015. Further, given its scale of operations, it is well armoured to face head winds as compared with its peers. At the current market price of Rs2,381, the stock trades at 21.3x and 19.4x FY2015E and FY2016E earnings respectively. We maintain TCS as our top pick among the large-cap IT companies and retain our Buy rating with a price target of Rs2,684," says Sharekhan research report.
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