TCS (CMP: Rs1280)
Mkt Cap: Rs1,253bn; US$28.6bn
TCS results were lackluster given the fact that expectations were high based on the management commentary over the last couple of quarters. While the top client continued to fire growing by 20.6% qoq, it was disappointing to note that pricing remained stable (Infosys’ billing rates continued to grow) and volume growth was modest at 5.2% qoq. While hiring continued to be strong, the lack of data on pricing and volume not only poses a risk on the upside but also on the downside. The increase in attrition rate at the experienced level also creates some nervousness. We are cutting our above-consensus estimates due to marginally lower volume growth and using an exchange rate of Rs42/US$. We are lowering our earnings forecast by 6.1% in FY08E and 4.7% in FY09E due to lower revenue and margin expectations. It is trading at 24x FY08E and 19.3x FY09E earnings (which is same as Infosys’ valuation). We maintain Out performer but retain Infosys as our top pick in the sector.Download here