TCS: Meeting expectations

ANALYSTS' CORNER

Enam Securities, in its results update, rates Tata Consultancy Services as an "outperformer", relative to the sector. The report states that TCS' Q2 results are largely in line with expectations. Blended volume growth of about 10 per cent, a similar quarter-on-quarter growth in non-top international clients and higher offshore revenue growth (up 8.7 per cent quarter-on-quarter growth) boosted topline growth.

The topline growth (up 8.9 per cent sequentially and 21.4 per cent year-on-year), was marginally better than estimates. Higher salary and higher equipment-related costs impacted OPM, with operating profit growth slowing down as compared to topline growth.

PAT rose 8.8 per cent sequentially and 22 per cent year-on-year. Volume growth in its high growth areas of consulting (10 new client additions), IT infrastructure services and engineering & industrial services (18 new client additions each) and BPO services (eight new clients) appears to reflect comparatively higher business momentum. The stock trades at 25.1x FY06E and 20.2xFY07E.

Infosys: Blended volumes

Enam Securities rates Infosys as "neutral", relative to the sector. The company reported 10.7 per cent q-o-q and 31.1 per cent y-o-y topline growth during Q2 FY06. This comes on the back of 10.4 per cent q-o-q and 41.6 per cent y-o-y growth in blended volumes. PAT (up 13.9 per cent q-o-q and 35.5 per cent y-o-y) was driven by an absence of forex loss and tax write-back of Rs 20 crore.

The topline as well as bottomline numbers are better than estimates. The report adds that strong volume growth was discernible during the quarter. A sequential 6.6 per cent rise in revenues from top 10 clients, 12.7 per cent q-o-q increase in non-top 10 clients and an improvement in quality of clientele were the key highlights of the quarter.

Topline guidance for Q3 has been revised upwards by 3.7 per cent to 4.6 per cent (in the range Rs 9360 crore to Rs 9380 crore.)The revised EPS guidance of Rs 89-89.4 for FY06 implies an upward revision of 4-5 per cent from the earlier guidance. The stock trades at 28.9x FY06E and 23.3x FY07E.

Geometric: Earnings warning

Motilal Oswal Securities revises its "buy" recommendation for Geometric Software to "neutral". The company has issued earnings warning for the Q3 FY06. This is the second such warning issued by the company during the current financial year.

Once again, it has cited delays in certain projects from its business partners and delay in the launch of the CAD-PDM product in certain channels as reasons for issuing the warning.

Like before, these delays are not indications of the business environment but rather are specific to the company, marking this as the second consecutive quarter of negative bottomline growth for the company.

Consequently, the report has downgraded its earnings forecast from our earlier estimate of 35.2 per cent to 17.2 per cent in FY06. At 17.7x FY06E earnings, the stock is said to be expensive and expect the price to trend downward in the short to medium term.