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Tuesday, July 27, 2010

Stock report - TCS after recent results

Stock report on TCS after it's recent results declaration. TCS does not need any introduction as India's largest software exporter. It leads the IT companies in India in terms of revenues earned. Is it a stock to buy post it's Q1 result? For what target should one buy stock of TCS now?

The company has reported better than expected revenue and earnings for Q1 FY 2011 observing the strong rebound in demand. Revenue on a constant currency basis has increased by 7.3% Q-O-Q against the stock market expectations of 5.7%.

The growth rate is better than that of rival Infosys (6%). This level has not been seen since Q3 FY 2008. It looks like corporate IT spending has increased and played a prominent role in improving the performance of the company. Steps taken by the company to maintain better margins has definitely helped it.

USD revenue has increased by 6.4% Q-O-Q on strong volume growth of 8.1%. Despite wage hikes in the quarter, the profit margin fall is just 36 bps leading to a better than expected EPS growth. Order flow for TCS is picking up with 10 deals in Q1 and 15 more in the pipeline.

Stock dividend from TCS is at 20 Rs/share. At current stock price, Rs. 840, this dividend yield stands at 2.38%. This makes TCS a good dividend yielding stock and keep in mind that this is one of the safe stock to buy from IT pack in Indian stock markets. Tata sons ltd. holds more than 73% shares of TCS and dividend income from TCS is one of the biggest income source for TATA sons which they reinvest in other group companies. The biggest beneficiary of good dividend yield from TCS is TATA company itself and this very fact would keep clocking good dividend income year after year for investors.

EPS projection for FY 2011 - 13 has been hiked by 4 -5%. The projected/estimated EPS for FY 2011 comes at approx. 36-37 range. IT Industry has always commanded a P/E ratio of around 21. And TCS, being largest IT company commands premium P/E on top of this. It's current P/E is at 27.87. If we consider P/E of 25 for our future calculations, it takes us towards target stock price of Rs. 900 - 925. One may buy stock for long term investment portfolio.

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