The TCS management is reported to have said that early indicators call for “reasonable optimism” in so far as CY 2013 budgets of clients are concerned.
It also expects pricing to be stable.
Reporting on an analysts' briefing with the TCS CFO and ED S. Mahalingam and Head of Investor Relations Kedar Shirali, Mumbai-based Angel Broking said that TCS was confident of meeting its plans made in April 2012 for the full year and did not see any “major project cancellations or change in customers' decision- making process and their budgets”.
The company said that its deal pipeline “continues to remain healthy” and the overall “pricing in the market is stable”.
The broking outfit said for IT companies the third quarter will be like any other year with volume growth remaining soft.
It expected the software major to deliver a 3-3.5 per cent q-o-q volume growth in the third quarter of current year against 4.9 per cent in Q 2 of FY2013 due to fewer working days and furloughs. While normally verticals such as hi-tech and manufacturing have furloughs, this year even some banking and financial services (BFS) clients took furloughs.
This, however, is not expected to impact revenue from BFS, instead it was expected to go up. Telecom, however, was one sector that continued to cause some concern. In terms of ramp-ups in deals signed and deal closures, TCS did not see any difference compared to the previous quarter. Growth was likely to be broad-based with Europe lagging slightly, mainly due to “sluggish telecom vertical”.
The Angel Broking report said that the TCS management expected a small dip in margin during the third quarter of this year because of fewer working days and addition of freshers.
But TCS maintained that it would be focused on delivering 27 per cent EBIT margin for the current fiscal.
Fourth quarter
In case the EBIT margins decline by 30-40bp q-o-q during the third quarter, then TCS would have to post a 130-140bp q-o-q jump in EBIT margin in 4Q of this year to meet the 27 per cent target for full year, the report said.
TCS indicated that it was assessing its clients’ plans for the next year budget and “early indicators call for reasonable optimism”. The picture would become clearer on client budgets in January. With regard to pricing, it has not seen any “irrational behaviour in a consistent manner and expects pricing to remain stable”, the report said.
TCS expects hedge losses of Rs 30-35 crore, based on the hedge positions taken and the premium that it would have charged by December 2012.
Angel Broking said that the management commentary “sounded promising and hardly reflected any impact from a daunting macro environment”. It expected TCS
“to again outperform its peers” in the third quarter of this year in terms of growth. The company's execution was good in the past many quarters and the stock was now trading at 17.3x and 15.8x its FY2013E and FY2014E EPS of Rs 69.7 and Rs 76.2, respectively.
Angel Broking said it remained positive on the stock and maintained its buy rating with a target price of Rs 1,410.
The TCS stock was up by Rs 12.25 at Rs 1,222.90 in the NSE in the early minutes of trading today.