TCS trades at a P/E of 23. This makes it one of the most expensive of big tech firms in India. It is also one of the strongest.
Don't buy TCS if you want a runaway investment multiplier. The 51 per cent rally in the stock this year virtually rules it out. On the other hand, if you want a solid stock that has demonstrated its ability to navigate tough business environment better than most of the Indian tech industry, TCS is the stock for you.
Why you should add TCS to your portfolio?
One of the key factors that has backed TCS in its stellar outperformance has been its robust volume growth. In the June 2013 quarter, volumes were up 6.1 per cent over the immediately preceding quarter.
Managing costs has been something TCS has been doing quite well. Despite a 172 basis point wage hike, margins expanded 20 basis points in the June 2013 quarter. TCS now has a differential of around 500-600 basis points in margins compared to its peers. Factors that have helped TCS to expand this differential include lower attrition, better utilisations, deeper client mining and relative premium on realisations.
The company delivered broad based growth in Q1. Going ahead, TCS is optimistic of doing better business this year than the 16 per cent revenue growth it reported in FY13. TCS is betting that discretionary demand will see an uptick this year. However, it cautions, growth oriented spending is likely to hit off materially only by FY15.
Other verticals that TCS sees will continue their momentum this year include retail and manufacturing, energy and utilities and healthcare. Improving BFSI outlook too is expected to help the company push the run rate higher this year.
TCS is a solid bet on the improving tech spends in the US and stands to benefit from the weakening rupee. Its strong momentum is likely to maintain valuations and premiums going ahead.
This article was originally published on November 28, 2013.
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