TCS Downgraded to Equal Weight

Morgan Stanley [MS] just a while ago has downgraded Tata Consultancy Services to Equal-Weight. While Credit Suisse already maintains a Neutral rating on the same.

Lower profitability of large deals and slower than expected ramp-ups could affect profitability over the coming quarter, in MS’s view.

TCS reported lower-than-expected revenues and profits for March 08 quarter due to client specific delays in US and Chile. Revenues at Rs60.9 bn (+3% qoq, +18% yoy) were below our and consensus’ estimates. EBIT at Rs13.9 bn (-3% qoq, +5.5% yoy) with EBIT margins at 22.8% (-136bps qoq, -279bps yoy) were below estimates. Net profit at Rs12.6 bn (-5.6% qoq, +7% yoy) was below Street expectations.

TCS’s performance has been below peers’ in times of weak environment. This could lead to weaker-than-peers’ growth in FY3/09, which could limit absolute performance. TCS’s high exposure to financial services was a cause of concern to us, as weak credit conditions led to pressure on financial institutions.

MS Expects TCS to report an EPS of Rs 58.4 for FY09 and Rs 65.5 for FY10 and has set a 12 month price target of Rs 1,080. Credit Suisse has set a target price of Rs 1,050 on EPS forecast of Rs 59.5.