Prabhudas lilladher attended Tata
Consultancy Services’ (TCS’) “Sell Side Analysts’ Meet” on December 17,
2012. The management retained its stance on a stable outlook for FY13.
However, Q3FY13 performance is likely to be impacted by lower number of
working days and furloughs. TCS didn’t share median consensus
expectation for the quarter. Prabhudas lilladher tweak their model for
higher tax rate, hence revise their target price to Rs1,400 (from
Rs1,450).
- ~3% negative impact due to lower working days and furloughs:
According to the management, the quarter will be impacted by lower
working days (1 day) and furloughs (~1.5 days). 1) Q3 generally
witnesses furloughs from Hi-tech, manufacturing and telecom clients. 2)
BFSI also witnesses furloughs in the quarter. However, the furloughs are
not an indication of any budget cuts. 3) Lower growth in Europe due to
weakness in telecom vertical 4) North America likely to deliver positive
volume growth despite usual headwinds including Sandy 5) In terms of
service line, the growth is likely to be evenly poised. 6) There is no
pricing pressure, but didn’t rule out volume discount.
- Gross addition likely to be lower, but fresher addition strong: TCS
is will have weak laterals additions but strong fresher additions. The
management does not expect any spill-over in fresher addition to FY14.
Moreover, guidance for FY14 fresher addition of 25k is retained. Also,
the supply-side constraint will continue pushing subcontracting cost but
at a slower pace.
- Margin decline to continue, but strict vigil on 27% operating margin guidance:
The management expects decline in margin due to lower working days,
higher fresher intakes and forex movement. However, they reiterated
their goal of 27% EBITA margin. The management was confident of
recouping margin in Q4FY13. Q2FY13 & Q1FY13 operating margins were
26.8% and 27.5%, respectively.
- Tax rate stable, forex loss due to premium charged for option:
The hedging loss for Q3FY13 is likely to be Rs340-350m, compared to
gain of Rs130m in Q2FY13. There will be positive asset translation
impact in the quarter due to currency movement. Tax rate for the quarter
is likely to be stable.
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