Tata Consultancy Services
The uncertainty in the US BFSI space and large dependence on clients from this sector means that TCS revenues might be impacted the most over the next few quarters.
In Q1, while most verticals saw growth, TCS's BFSI segment saw a 130 bps drop q-o-q in revenues due to client issues. In this light, the Q2 numbers will provide an indication whether there is a trend emerging or not.
On the cost front, despite a 6 per cent rise in revenues, wage inflation and lower average billing rates meant that operating margins (in Q1) were marginally lower at 22.06 per cent, thanks to the cost containment programme, which saw SG&A expenses drop 4.3 per cent q-o-q.
While the company's utilisation rate hovers around a healthy 74 per cent, a slowdown in the US which accounts for half of its revenues might require India's largest IT employer to cut down on its hiring plans.
At Rs 676.45, the stock is trading at a reasonable 11.30 times its FY09 EPS estimate of Rs 59.90. But, given the uncertainties for the sector, this is a high-risk high-reward play.
Image: http://im.rediff.com/money/2008/sep/10slid2.jpg
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