We believe improving discretionary spend in the US and market-share gains in Europe would drive healthy growth for the Indian IT services industry. TCS stock has modestly underperformed the broader markets recently (6% YTD) and currently trades at 18x FY15e EPS. We see upside to our estimates if the global economy gathers momentum, and expect TCS valuations to inch closer to previous business cycle peak.
We attended Tata Consultancy Services (TCS) pre-quarterly analyst meet. The management has reiterated its optimistic view on the demand environment. Despite seasonal softness in Q4FY14 vis-a-vis Q3, it expects FY14 to be better than FY13 and FY15 better than FY14.
The management expects usual beginning-of-the-year seasonal weakness to play out in Q4 in the absence of any budget flush in India business, unlike in FY13. India business would continue to see sequential decline due to muted pre-election spending.
US/ UK revenue growth would be close to company average while Europe would be in line with previous quarters (6.5% in Q3FY14). Among emerging markets, LatAm would be strong while West Asia/APAC would be flattish.
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