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Tata Consultancy Services 4QFY2014 performance highlights and results update

April 21, 2014, Monday, 03:04 GMT | 23:04 EST | 06:34 IST | 09:04 SGT
Contributed by Angel Broking

TCS reported its 4QFY2014 results with revenue a bit lower than expectations, while the net profit came in marginally higher than our estimates on account of healthy forex gains. The company’s performance was impacted by a decline in revenue in the Retail and Telecom industry verticals. The company’s overall volume growth stood modest at 2.6% qoq in a seasonally soft quarter. The Management’s bullish commentary, coupled with continued hiring and pick up in discretionary spends, point that TCS will continue to be an outperformer in the sector. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 4QFY2014, TCS posted a revenue of US$3,503mn, up 1.9% qoq. In INR terms, the revenue came in at Rs.21,551cr, up 1.2% qoq. The EBIT margin of the company declined by 60bp qoq to 29.1% due to increase in investments and decline in realizations. The company’s net profit grew by 2.3% qoq to Rs.5,297cr, supported by a forex gain of Rs.204cr.

Outlook and valuation: The Management reiterated that it expects FY2015 to be better than FY2014 on the back of strong deal pipeline and budget indications from clients. A healthy deal pipeline, broad-based deal signings, initial signs of up-turn in discretionary spending and good traction in annuity, traditional and transformational business - all these factors have collectively lent confidence to the company in estimating FY2015 to be a better year than FY2014. TCS also indicated that it is reaping benefits of investments in geographies such as Continental Europe and Latin America. The Management, however, cited a word of caution on India business, which it expects to remain muted till 1HFY2015 due to impending elections. Over FY2014-16E, we expect TCS’ revenue to post a CAGR of 14.6% in USD terms and of 14.7% in INR terms. We maintain our Accumulate rating on the stock with a target price of Rs.2,410.