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TCS -Strong Quarter + Domestic Focus

October 20, 2009

TCS reported volume growth of ~5% and margin expansion of ~150bps qoq. Revenues at $1,538m (CIRA: $1,508m) and margins at 28.7% (CIRA: 27.2%) were significantly better. Net profit at Rs16.2b increased ~7% sequentially. BFSI, Retail and Utilities did well while Telecom, Manufacturing and Hi-tech seem to be bottoming out, according to the management.

TCS has reported second consecutive quarter of volume recovery. Cost management has been very strong – reflected in the fact that TCS is coming out of the downturn with historic high margins.

TCS’s results and concomitant management commentary should, however, decidedly reverse the sentiment. The company’s credit is in triggering a big EPS upgrade driven by revenue upsides and December-2009 results of tier-1 techs should furnish further proof of a steep demand recovery.

TCS EPS Expectations and Rating
Citi expects TCS to report an EPS of Rs 31.53 and Rs 34.75 for FY10 and FY11.

Credit Suisse expects TCS to report an EPS of Rs 30.03 and Rs 33.64 for FY10 and FY11.

Religare expects TCS to report an EPS of Rs 32.1 and Rs 35.6 for FY10 and FY11.

BOFA-Merrill expects TCS to report an EPS of Rs 33.13 and Rs 36.46 for FY10 and FY11.

The Stock Appears to be fully pricing its growth for FY11. ADD on Corrections.

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