We retain ?add? rating on Tata Consultancy Services (TCS) with a target price of R2,800 per share. TCS indicated there was no change in its deal-signing momentum, but indicated improved project-based revenues from the US. We expect TCS to report the strongest organic growth among tier-1 IT, thanks to its unmatched market coverage and breadth of services. These will help sustain TCS? premium valuation against the sector. Returns from current levels will, however, be modest after the recent rally.
At its quarterly analysts meet, TCS indicated it expects a quarter of broad-based revenue growth. BFSI, which was a laggard in Q1, is expected to grow faster on the back of strength in BFS; the insurance segment remains weak. Smaller verticals like media, travel and life sciences, which powered growth in Q1, will see normalization in their sequential revenue growth trajectory. Consolidation of IT Frontier Corporation (Japanese JV) financials will start beginning Q2FY15 and will contribute ~$100 million to revenues. Japan is now expected to contribute around $300 million in incremental revenues for the year. We expect TCS to report 7% sequential revenue growth for the quarter, with 4.3% growth in organic terms. Cross-currency movements will impact reported revenue growth by about 80 bps (based on current exchange rates).
TCS indicated that operating margins will improve marginally, by about 30 bps q-o-q. Note that reported an ebit margin for Q1FY15 was 26.3%.