Karvy Stock Broking

TCS (Hold)

CMP: ₹2,444.90 (₹2,678)

Target: ₹2,960

TCS posted a 6.4 per cent q-o-q rise in dollar revenue, at $3,929 million, slightly below our estimate, while cloud computing (CC) revenue was up 7.4 per cent q-o-q, including a 2.8 per cent revenue boost owing to the Japanese acquisition. Organic CC growth was 4.6 per cent q-o-q, with volume growth at 6.1 per cent q-o-q. Realisations fell 1.5 per cent q-o-q. Key growth drivers from a vertical perspective were manufacturing (up 25.1 per cent q-o-q), hi-tech (10.2 per cent q-o-q), life sciences (6.4 per cent q-o-q), energy and utilities (17.3 per cent q-o-q) and media and entertainment (6.4 per cent q-o-q). The key banking, financial services and institutions (BFSI) vertical grew 3 per cent q-o-q. Retail is seeing delay in ramp ups, owing to which it grew 4.5 per cent q-o-q, slower than in 1QFY15. Rupee revenue grew 7.7 per cent q-o-q at ₹23,820 crore.

We expect TCS’ stock to correct on Friday given a revenue miss on high street expectations. Nonetheless, given that business momentum remains strong, we expect the IT major to continue to outperform peers in terms of growth. We forecast 14 per cent dollar revenue CAGR over the period FY15-FY17E. We recommend buying at lower levels.

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