Tcs to continue delivering sector leading revenue

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Unformatted text preview: recasts And Ratios Year End Mar 31 Sales (INRm) EBITDA (INRm) Reported NPAT (INRm) Reported EPS FD(INR) DB EPS FD(INR) DB EPS growth (%) PER (x) EV/EBITDA (x) DPS (net) (INR) Yield (net) (%) 2012A 2013A 2014E 2015E 2016E 488,938.3 629,894.8 822,827.8 985,818.4 1,175,016.3 144,177.3 180,871.8 254,860.5 297,608.7 345,590.3 106,383.6 139,414.2 188,637.6 229,884.3 271,203.8 54.35 71.23 96.38 117.45 138.57 54.35 71.23 96.38 117.45 138.57 22.0 31.0 35.3 21.9 18.0 20.7 18.3 23.2 19.1 16.2 14.6 13.6 16.4 13.7 11.4 31.00 22.00 25.00 31.00 38.00 2.8 1.7 1.1 1.4 1.7 Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Page 20 Deutsche Bank AG/Hong Kong 7 January 2014 Software & Services Indian IT Services Investment thesis Outlook We believe fundamentals of the sector are improving. In our view, positives like: (a) economic recovery in the US, (b) a rebound in demand from the financial services vertical, (c) continued strength in demand for outsourcing from Europe, (d) a pickup in discretionary spending, and (e) a stable currency, will help improve revenue and earnings growth for the sector. We expect TCS, India's largest offshore services provider, to be the key beneficiary of improvement in demand and clients' increased focus on using offshore delivery. For FY15, we forecast earnings would grow 22% in rupee EPS. The company has an estimated long-term earnings growth potential of at least 15%–20% given a likely increase in focus on cost control and outsourcing in developed economies. As such, we rate TCS a Buy. Valuation We value Indian IT services firms on a P/E basis, relative to their historical trading range, compared with peers as well as growth rates. We value TCS at a target P/E of 24x FY15E. Our target P/E multiple implies a PEG of 1.1 (vs.0.9 earlier). In light of abating concerns regarding the US immigration bill and consistent performance, we have reverted to the higher PEG. On a one-year forward basis, TCS currently...
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This document was uploaded on 02/06/2014.

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