Tata Consultancy Services shares surged over 3% Friday after the largest software services exporter of the country reported better-than-expected earnings for the first quarter.
TCS’ net profit of Rs 2,380 crore in April-June was flat sequentially, but higher than Rs 2,240 crore analysts according to a CNBC TV18 poll had expected. First quarter revenue was at Rs 10,797 crore, compared with analysts’ expectation of Rs 10,674 crore.
Rival Infosys had earlier this week dissapointed the market with earnings slightly below analysts expectations and full year guidance little changed from what it had forecast earlier.
"TCS’ 26.2% EBIT margin for the quarter came ahead of the erstwhile margin leader Infosys. However, it was the strong topline growth that took centre stage...The key surprise was the strong growth in telecom vertical (up 14.3% quarter-on-quarter)," brokerage CLSA said in a report. Rival Infosys had seen a decline in the telecom sector during the same period, it noted.
However, the brokerage maintained its "underperform" rating on TCS, saying an unfavourable macro-environment could limit its ability to meet/beat elevated street expectations in the second half of the current fiscal.
"Valuations at 21x March 2012 earnings are indicative of the street’s optimism on continuation of the current growth trajectory and this remains the key challenge for the stock ahead," CLSA analysts Nimish Joshi and Arati Mishra said.
A few other brokerages in contrast sounded more bullish on TCS.
JP Morgan and Edelweiss maintained their "overweight" and "buy" respectively, and Sharekhan upgraded the stock to "buy" from "hold."
"TCS is demonstrating that is continually raising the bar in the sector and extending its lead in indefatigable fashion," JP Morgan’s Viju George and Amit Sharma said in a report.
"TCS reiterates strong demand (even for discretionary projects) and sees a robust pipeline even in Europe. This is in contrast to the commentary of Infosys that it is witnessing some slowness in decision-making on discretionary spending – which supports our contention that growth issues at Infosys are largely company-specific," the two analysts said.
Analysts at Sharekhan said that TCS had "positively surprised" with a "smart performance" in the first quarter and the buoyant management commentary provided further comfort to its estimates for fiscal 2012 and 2013.
Sharekhan is expecting TCS’s net profit at Rs 10,412 crore on revenue of Rs 46,937 crore for the current fiscal, and a net profit of Rs 12,214 crore on revenue of Rs 55,447 crore for fiscal 2013. EBIT margin is likely to be around 27.4%, it said.
"TCS has multiple margin levers at its disposal, which we believe, will sustain its margins, shielding it from continued pressures on account of wage increases across the industry. End-to-end full services offerings, traction in emerging markets, ability to roll up large acquisitions, improving sales and marketing prowess and willingness to take multiple big bets (different go-to-market models) are among the key rationales for TCS to sustain its long term hi-growth trajectory," said Ganesh Duvvuri and Kunal Sangoi of Edelweiss Securities.
TCS’ net profit of Rs 2,380 crore in April-June was flat sequentially, but higher than Rs 2,240 crore analysts according to a CNBC TV18 poll had expected. First quarter revenue was at Rs 10,797 crore, compared with analysts’ expectation of Rs 10,674 crore.
Rival Infosys had earlier this week dissapointed the market with earnings slightly below analysts expectations and full year guidance little changed from what it had forecast earlier.
"TCS’ 26.2% EBIT margin for the quarter came ahead of the erstwhile margin leader Infosys. However, it was the strong topline growth that took centre stage...The key surprise was the strong growth in telecom vertical (up 14.3% quarter-on-quarter)," brokerage CLSA said in a report. Rival Infosys had seen a decline in the telecom sector during the same period, it noted.
However, the brokerage maintained its "underperform" rating on TCS, saying an unfavourable macro-environment could limit its ability to meet/beat elevated street expectations in the second half of the current fiscal.
"Valuations at 21x March 2012 earnings are indicative of the street’s optimism on continuation of the current growth trajectory and this remains the key challenge for the stock ahead," CLSA analysts Nimish Joshi and Arati Mishra said.
A few other brokerages in contrast sounded more bullish on TCS.
JP Morgan and Edelweiss maintained their "overweight" and "buy" respectively, and Sharekhan upgraded the stock to "buy" from "hold."
"TCS is demonstrating that is continually raising the bar in the sector and extending its lead in indefatigable fashion," JP Morgan’s Viju George and Amit Sharma said in a report.
"TCS reiterates strong demand (even for discretionary projects) and sees a robust pipeline even in Europe. This is in contrast to the commentary of Infosys that it is witnessing some slowness in decision-making on discretionary spending – which supports our contention that growth issues at Infosys are largely company-specific," the two analysts said.
Analysts at Sharekhan said that TCS had "positively surprised" with a "smart performance" in the first quarter and the buoyant management commentary provided further comfort to its estimates for fiscal 2012 and 2013.
Sharekhan is expecting TCS’s net profit at Rs 10,412 crore on revenue of Rs 46,937 crore for the current fiscal, and a net profit of Rs 12,214 crore on revenue of Rs 55,447 crore for fiscal 2013. EBIT margin is likely to be around 27.4%, it said.
"TCS has multiple margin levers at its disposal, which we believe, will sustain its margins, shielding it from continued pressures on account of wage increases across the industry. End-to-end full services offerings, traction in emerging markets, ability to roll up large acquisitions, improving sales and marketing prowess and willingness to take multiple big bets (different go-to-market models) are among the key rationales for TCS to sustain its long term hi-growth trajectory," said Ganesh Duvvuri and Kunal Sangoi of Edelweiss Securities.
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