TCS’ 4QFY09 results below our estimates. There was an organic volume de-growth at 2.65%. We believe that this was on account of exposure to more troubled clients.
Top clients continue to face revenue, profit declines thereby impacting IT spends. Macro scenario still not conducive and budgets not finalized / under pressure. TCS has recommended a 1:1 bonus issue.
We make changes to our FY10 earnings estimates and assume rupee to appreciate to Rs.46 per USD by 4QFY10. FY10E earnings stand at Rs51.4 per share with a price target at Rs597 v/s Rs617 earlier.
We downgrade the stock to ACCUMULATE due to near-term uncertainties and recent price run-up and maintain preference for Infosys due to better growth rates and conservative accounting policies.
A sharp appreciation in the rupee against various currencies and a prolonged recession in major user economies remain the key risks to our call.
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