Tata Consultancy Services (TCS) recorded a muted revenue growth of 3% q-o-q, to Rs60,978 million, driven by the modest volume growth of 4.8% q-o-q. Pricing declined by 1.6% q-o-q, due to a delay in projects ramp up from some clients and free transition in some new projects.
Although billing growth may remain muted in FY09E, volumes are expected to grow strongly considering the hiring guidance and large deals. We have revised the revenue estimates for FY09E up by around 3.2% to Rs269.4 billion (growth of 18%) accounting for rupee depreciation against USD and improved employee addition guidance.
We believe that the margins will marginally improve to around 26.5-27% for FY09E, driven by better operating leverage from off-shoring and SG&A.
Utilisation rate improved from 77.7% in Q3’08 to 79.1% in Q4’08, despite the net addition of 3,299 employees.
The Company met its total gross hiring guidance as the total headcount for FY08 crossed 35,000. Besides this, TCS has given guidance to add 30,000-35,000 headcount during FY’09, which indicates that the Company is positive about volume growth.
At the CMP of Rs907.6, the stock is trading at forward P/E of 15.2x and 12.6x for FY09E and FY10E, respectively, which is at par with the industry average of 14.9x for FY09E. Based on the DCF valuation, we have arrived at a price of Rs1,043 for the next 9 months, an upside of 15% from current levels. We maintain our BUY rating.