TCS down despite good performance

Tue, 20 Apr 01:30 pm

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   Closing   

The Indian markets continued to move upwards though at a muted pace during the previous two hours of trade. The sustained buying activity witnessed in the stocks from the realty, banking, auto, energy and metal sectors aided the indices in upward march. However, stocks from telecom and IT sectors traded in the red.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 148 points and 51 points respectively. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 1.6% and 1.8% respectively. The rupee is trading at 44.57 to the dollar.

India's largest IT services exporter, TCS declared its FY10 and 4QFY10 results yesterday. The company posted an excellent topline growth of 8% YoY for FY10 on back of 17% YoY increase in volumes. Despite the headwinds of appreciating rupee, TCS managed to expand its operating profit margins by 3.2% YoY through better cost management and improved utilization levels. It bottomline surged by 33% YoY during FY10 on back of volume growth and operating efficiency, also aided by increase in other income component. On a sequential basis, the revenues and net profits grew by 1% QoQ and 10% QoQ during 4QFY10.

The management of the company has hinted at a robust deal pipeline particularly in the BFSI (banking, financial services and insurance), retail and healthcare verticals. IT spending appears to be in for a significant increase in geographies like North America, Continental Europe and India. However, industry verticals like manufacturing, telecom and hi-tech and geographies like the UK continue to remain a concern for the company. Nevertheless, we believe that robust growth numbers posted by the two largest Indian IT companies suggest of a sustainable recovery of global demand for IT services.

State-owned engineering major BHEL, has won a Rs 63 bn worth contract for setting up a 1,600 mw supercritical power plant in Karnataka from Raichur Power Corporation (RPCL). This end-to-end project requires BHEL to design, engineer, manufacture, supply, erect as well as commission two coal-fueled thermal power units of 800 mw each. This is a significant order for BHEL as it is the biggest ever order to supply equipment to any single project.

It may be noted that RPCL is a joint venture between Karnataka Power Corporation (KPCL) and BHEL and this is BHEL's first order from this JV. BHEL which is already implementing supercritical power projects for companies like NTPC, Apgenco, Jaypee Group is expecting order flows to increase significantly going forward. It plans to aggressively expand its manufacturing capacity from 15,000 mw to 20,000 mw in the coming years. We believe that though BHEL's order book looks extremely well placed, it is its ability to swiftly execute these orders that will determine the company's fortunes going forward.