Arihant capital markets has recommended a neutral rating on Tata Consultancy Services (TCS) with a target price of Rs 2557, in its research report dated July 21, 2014.
"TCS's 1QFY15 performance was better than our and consensus estimates on revenue and operating margins front. TCS reported $ revenue growth of 5.5% QoQ and 16.7% yoy. In rupee terms revenues were 2.6% higher QoQ at Rs 22,111cr. Volume growth during the quarter was at 5.66%, while realizations declined 1.09%. Business across geographies, except MEA, increased on QoQ basis. EBIT margins dipped 285bps QoQ to 26.3%, while profit after tax declined by 4.5% QoQ to Rs 5,058cr.
Utilizations levels (ex trainees) were at all time high of 85.3%, while including trainee's utilization level was at 79.8%. Employee attrition level was 12%. Company added 4,967 employees on net basis. Gross employee additions were at 15,817. Number of clients in $100mn and above category remained constant on QoQ basis at 24, however clients in $50mn to $100mn bucket increased from 136 to 144 on QoQ basis.
We believe, TCS will continue to deliver stellar performance every quarter with consistent client wins and improving global economic scenario. We estimate FY16 revenue/earnings to record a CAGR of 17%/14.5%. We have valued stock at P/E(x) of 20x (premium to its peers) it's FY16 EPS and have arrived at a fair value of Rs 2,557. Recommend 'Neutral'rating on the stock, post the run‐up in the price", says Arihant capital markets research report.
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