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Unformatted text preview: ages like: (a) diversified geographical and vertical
exposure, (b) a strategic vendor status with most of its top customers and (c)
share gains by displacing incumbent multinational vendors should enable TCS
to continue reporting sector-leading earnings growth. We expect the company
to deliver an earnings CAGR of 20% over FY14–16E. We reiterate Buy and our
top pick status with a Street-high target price of INR2,900.
Strategic vendor status to help gain market share
With pent-up demand for software and hardware refresh being one of the
primary reasons for the improved spending in 2014, TCS’s dominant
positioning with its large customers will help it win a higher share of this
spend. This underpins management’s positive outlook for key verticals such as
financial services, manufacturing and retail. More importantly, with this spend
being largely discretionary, it will improve realized rates and margins.
TCS to continue delivering sector-leading revenue growth in FY15E
We forecast TCS would report sector-leading USD revenue growth of 21.2%
yoy in FY15E (vs. 17.3% yoy in FY14E). Key catalysts are: (a) share gains in
clients’ IT budgets in CY14E; and (b) share gains by displacing incumbent
multinational vendors, especially in continental Europe. 2400
1/12 7/12 1/13 BSE 30 (Rebased) Performance (%) 1m 3m 12m Absolute 12.0 10.2 72.6 BSE 30 -0.7 4.7 5.4 Source: Deutsche Bank Stock data
Market cap (INRm) 4,383,392 Market cap (USDm) 70,207 Shares outstanding (m) 1,957.2 Major shareholders
Free float (%) Tata Sons (75%)
17 Avg daily value traded
(USDm) 40.7 Source: Deutsche Bank Key indicators (FY1)
ROE (%) 40.0 Net debt/equity (%)
Book value/share (INR)
Price/book (x) -18.7
8.2 Net interest cover (x) Retaining top pick status with a target price of INR2,900
Our target price is based on a P/E of 24x FY15E and a PEG of 1.1. A key risk is
higher-than-expected appreciation of the rupee vs. major billing currencies. 7/13 Tata Consultancy Operating profit margin (%) –
29.3 Source: Deutsche Bank Fo...
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This document was uploaded on 02/06/2014.
- Spring '14