Jul 17, 2007

TCS: Time for re-rating? : Stocktrendz


TCS is the largest software exporter in the country today.It has been one of the most consisitent players in this market when it come to delivering outstanding number every Quarters.Tcs has done this one again by giving number above market expectations in a situation were dollar has depiciated to $40 levels.

TCS has a hedge position in various currencies equivalent to $1,434 million as on March 31, 2007 that would help it minimise risk from appreciation in the domestic currency. The hedge position represents a 61 per cent increase over March 2006, when it had 566 million dollar, according to its annual report.

"The sharp appreciation of the rupee against all major currencies impacted our operating margins during the quarter," said V Balakrishnan, chief financial officer of Infosys. The rupee in the quarter reached a level of 40.66 to a dollar, against 43.75 in the fourth quarter of 2006-07, an appreciation of 7 per cent.

The company hedges this net currency exposure using exchange forward and options contracts which has a tenure of two years.

However, in dollar terms, the growth has been a smart 8 per cent compared with Infosys 7.5 per cent. Infosys, however, managed a better blended billing rate increase at just over one per cent compared with 0.6 per cent for TCS.

Where TCS appears to have scored over Infosys in the June quarter is in the mining of its clients. It has done exceedingly well in every single category — the number of $100million-, $50 million- and $20 million-clients have all gone up significantly during the quarter and TCS now has six $100 million- clients, double the number in the March quarter. Infosys has mined its clients the number of $80 million clients doubled— but not as impressively as TCS.

At the current price of Rs1,128, the stock trades at a price-earnings (P/E) multiple 23.6 times estimated FY08 earnings and 18 times FY09 earnings. In comparison, Infosys, at Rs 1935, trades at just under 25 times FY08 earnings and 18 for FY09.

The P/E multiple gap between the two has been narrowing over the last six months and If TCS continues to perform like this for another couple of quarters, it could even trade at a higher multiple than Infosys.

Investment Strategy : ( Buy TCS On Every Decline )

Tcs is a the best invesmtent stock at current levels.Investors can buy this stock in small quantity and should buy them on decline with a difference of 20 rupees on each purchase price & Tcs has a near term bottom of 1080 if the market corrects heavily in coming weeks.

Tcs can be a collected with the average between 1115 to 1140 for long term with the target of 1425 with 12 months time frame.

Note : Strategy Only For delivery Purpose

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