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TCS : Research Report

Recommendation: HOLD
Key Data Bloomberg Code Reuters Code BSE Code NSE Code Face Value Market Cap. 52 Week High 52 Week Low Avg. Daily Volume(Qty) 1-Yr Rtn ISIN Industry Dividend Yield (INR) TCS IN TCS.NS 532540 TCS 1.00 2,53,264 Cr 1,439.80 1008.51 1627239.119 -1.11% INE467B01029 Technology 2.14

TARGET : 1367
Company Overview: Tata Consultancy Services, a division of Tata Sons Limited, is a global IT services organization that provides a comprehensive range of IT services to its clients in diverse industries. The Company, caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing, pharmaceutical, and utility industries As of Year 2012
Promoter FII DII 73.98 Others

Shareholders Promoter FII DII Others Total

As of year 2012 73.98 14.63 4.68 6.71 100.00

6.71 4.68 14.63

Following are the key points from the analysis: TCS has strong, secular growth across all our service lines and industry segments driven by robust volumes from key markets like North America, Europe and UK but operating margin may slip marginally The banking, financial services and insurance (BFSI) segment is expected to grow at a slower rate than the companys overall growth rate as it seems in a mature stage while revenues from retail, manufacturing and hi-tech industries are expected to grow faster

Despite a volatile global environment, its business as usual and the deal pipeline has stayed consistent for TCS. The IT major went for deal rampups recently, which is likely to lead to an onsite shift and some pressure on margins during the quarter, given higher costs typically associated with onsite delivery Growth on cloud can be an evolutionary process. BFS clients wanting to reduce their balance sheets, but they will be cautious in moving to cloud. Larger banks may consolidate their infrastructure and build private cloud to move to virtualized environment Despite the weak environment, realizations, utilization, offshore proportion, SG&A, non-linear revenues, and the employee pyramid all have been held stable and seem to be running at the near best case levels seen historically for TCS Margin expansion at TCS due to the currency appreciation is likely to be limited due to the salary increases and the quarterly variable payouts in the quarter. Overall loss due to currency fluctuation could be close to Rs. 25 crore in the current quarter.

Price Outlook and Valuation: We continue to be optimistic about business prospects for TCS especially considering momentum in its largest segment i.e. BFSI segment. However, we believe the same is reflected in consensus expectation and valuation premium assigned to the company. Hence, we believe there is limited upside to the stock price from current level and considering the same we recommend HOLD on the stock with target price of Rs.1,367 by assigning multiple of 24 times to its FY13E EPS of Rs.62.64.

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