TCS retains growth forecast, brokerages upgrade stock

Tags: News

Demand environment in line with expectations, firm tells analysts

A number of brokerages including Jefferies, Prabhudas Lilladher, JM Financial, KR Choksey Shares and Securities and Ambit Capital recommended buy/ac­cu­m­ulate on TCS after the firm’s management on Mo­n­day maintained its FY13 revenues target, saying the demand environment has remained broadly in line with company’s expectations.

The largest IT company said in an analysts’ call on Monday that it expected some delays in hi-tech and manufacturing verticals in the seasonally weak December quarter. Nonetheless, it reiterated its positive forecast for financial years 2013 and 2014. The firm maintained its hiring target for next year at 25,000 with no spillover in hiring this year.

“The slowdown expected in Q3 is largely on expected lines due to furloughs this quarter leading to lower number of billing days. The key verticals likely to see an impact include hi-tech/manufacturing and BFSI where this sort of seasonality is generally higher. Further, we expect only a limited impact from the Sandy hurricane for TCS. We expect TCS to continue to see some margin pressures on account of lower working days and lower utilisation rates. However, the management continues to maintain their guidance of maintaining margins at 27 per cent over the medium term,” said Rumit Dugar and Udit Garg of Religare Capital Markets.

Bhuvnesh Singh of Barclays, who is neutral on the scrip, said that against the backdrop of Infosys’ negative commentary, TCS, CFO, provided a more sanguine outlook for the December quarter and FY14.

“TCS has continued to outperform peers and gain market share. Management sees a continuation of market share gains that should drive growth into FY14,” Singh said.

Sandip Agarwal and Omkar Hadkar of Edelweiss Securities who recommended ‘hold’ post-meet pointed that the company firmly stands by the scenario it had envisaged at the beginning that the first half of FY13 will be stronger than the second half.

“TCS is facing furloughs in hi-tech and manufacturing verticals, which is in line with expectations. However, furloughs in the BFS vertical came as a surprise. While the telecom vertical and European geographies were weak, growth in rest of the verticals and geographies was stable. We believe current valuations provide limited upside from the current level,” the Edelweiss experts said.

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