Tuesday, September 27, 2011

TCS:: Strong business momentum to continue -- Credit Suisse,

 We assume coverage of TCS with an OUTPERFORM rating and
a 12-month TP of Rs1,350 (28% upside). Our new EPS estimates
are 3-7% ahead of consensus. This is our top pick in the sector.
● Continuing revenue and EBIT growth differential relative to peers
can sustain stock price performance. TCS has generated 1-4%
additional QoQ revenue growth over the past year relative to
Infosys and has bridged the historic 400-500 bp gap in margins.
● We believe its execution abilities are not well understood by the
market. Due to its large fixed-price engagements historically, we
think TCS has built an extremely strong fixed-price execution
capability. As order sizes get larger for the industry, execution is
expected to become an important differentiating factor for winning
orders as well as for margins.
● TCS used to trade at a significant discount to Infosys for a long
period following its IPO. Given its superior operational
performance in the recent quarters, it now trades at a premium.
We think this premium can be sustained for some more time


Risks
A deterioration in the macro and the onset of a recession are the key
risk to TCS at this point of time.
Additionally, market expectations have built up post recent operational
performance. Even a small disappointment can cause short-term
volatility in the stock.

No comments:

Post a Comment