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Tata Consultancy Services

Result Update: Tata Consultancy Services :

TCS' 3Q results beat market estimates on all fronts. A strong 5.7% volume growth was the highlight of the results. This was better than the growth rates reported by peers during the quarter and that too, on a larger base. The broad based nature of growth lends a degree of stability to the revenues.

Management commentary reflects greater optimism, likely on the back of strong pipeline and better deal flow. TCS won 9 large deals during the quarter. Management has seen continued revival in discretionary spends as well as in cost efficiency initiatives, which is encouraging.
Record hiring during the quarter also indicates good visibility. Realizations were higher, which is also encouraging from the margins perspective. Rate increases may continue, if demand sustains.

FY11E earnings now stand at Rs.44 per share (v/s 42 earlier) and FY12E earnings at Rs.51.7 (Rs.47.7), after considering higher tax rates for the fiscal. Accordingly the price target works out to Rs.1255 based on FY12 estimates. A sharp appreciation in the rupee against various currencies and a delay in recovery in major user economies remain the key risks to the stock.