TCS remains preferred IT sector pick of brokerages

MUMBAI: The Tata Consultancy Services stock surged more than 10 per cent in trade after reporting in-line quarterly results in the backdrop of a challenging macro environment for the sector. Brokerages are bullish on the stock and prefer it to other largecaps as the company outperformed peers like Infosys Technologies and HCL Technologies in the March 2012 quarterly results. 

TCS reported a consolidated net profit of Rs 2,894.93 crore for the quarter ended March 2012 against a net profit of Rs 2,802.77 crore a quarter ago. Net sales stood at Rs 13,259.33 crore for the quarter ended March 2012 compared to Rs 13,203.99 crore in the previous quarter.

The company reported a currency revenue growth of 2.3 percent quarter on quarter and led peers like Infosys (down 2.1 per cent) and HCL Tech (up 1.9 per cent). Volume growth was at 3.2 per cent QoQ compared to a decline of 0.6 percent QoQ at Infosys.

Bank of America Merrill Lynch maintained its above-consensus FY13 USD revenue growth estimate of 18% given the company's "robust hiring, likely bottoming of financial services vertical coupled with increasing contribution from verticals like telecom and retail and likely rebound in growth in H1".

The stock remains the top sectoral pick for BofA Merrill Lynch with a target price of Rs 1,400 per share.

"Among the top IT companies that have declared results for the March 2012 quarter, TCS is the only one to post a sequential growth in sales. While Infosys reported a 1.9 percent sequential decline in topline, HCL Tech registered a 0.6 percent decline in revenues. This factor further strengthens our belief in TCS as the top pick in the sector," said Nitin Prakash Daga, Analyst - Telecom, IT & Entertainment, Microsec Capital.

The management's expectations of growing above the NASSCOM average growth rate for FY13 have also been pushing the stock prices higher.

"Management is pretty confident of growing above the NASSCOM average growth rate for FY13. We understand the company has adequate visibility on customer spends and its own market share within that spend. TCS remains our preferred pick in the largecap space," said Dipen Shah, Head of Fundamental Research, Kotak Securities.