TCS recorded a 4.7% q-o-q growth in Top-line in 3QFY2009 primarily driven by the significant Rupee depreciation witnessed over the quarter (positive impact of 3.4% q-o-q).
The rupee rate for TCS came in at Rs49.07 per dollar in 3QFY2009 as against Rs44.18 in 2QFY2009, higher by 11.1% q-o-q. Volumes grew by a subdued 2.4% q-o-q, reflecting the increasing pressures of the worsening business environment.
Factors that adversely impacted revenue growth during the quarter were a slight dip in pricing (0.1% q-o-q) and a shift in the effort mix to offshore (1.1% q-o-q). Offshore revenues grew, as a percentage of Sales, by 0.8%.
However, in US Dollar terms, revenues dipped 5.8% q-o-q largely on account of the adverse cross-currency fluctuations witnessed over the quarter, with the British Pound, Euro, Australian Dollar and Brazilian Real all depreciating against the US dollar.
Owing to the margin expansion, the company recorded a 7.2% q-o-q rise in Bottom-line in 3QFY2009. Forex losses at Rs251 crore were almost similar to the previous quarter (Rs260 crore). On a y-o-y basis, bottomline grew by a mere 1.6%.
Over FY2008-10E, we expect TCS to record a 15.4% CAGR in topline, while bottomline is expected to clock a mere 6.2% CAGR.
At the CMP, the stock is trading at 8.8x FY2010E EPS. While valuations appear reasonable, given the cautious short-term environment for growth and pricing and the below-par 3QFY2009 performance by TCS, we believe the stock is likely to trade lacklustre in the near-term.
We have downgraded the target P/E multiple to 10x (13x earlier). We recommend an ACCUMULATE on the stock, with a target price of Rs578. However, near-term stock performance is likely to remain muted.