India's biggest software services exporter Tata Consultancy Services slumped on the bourses Wednesday amid flat trade.
The company reported third quarter numbers yesterday that were in-line with Street expectations. TCS Q3 net profit rose 21.8 per cent to Rs 2,803 crore for the quarter ended December 2011 against Rs 2,301 crore in September 2011 quarter (QoQ). The Street expectation was 21.74 per cent at Rs 2,801.44 crore.
However, TCS traded with over 3 per cent losses and was the worst performer on the 50-stock Nifty index.
In Pics: Why TCS stock fell despite good Q3 earnings
Here's what disappointed the Street according to brokerage firm CLSA:
1) Dollar revenues growth of 2.4 per cent quarter-on-quarter (4.5% in constant currency terms) is in-line with moderated Street expectations: Given its bellwether status in the Indian IT industry, TCS needed to do more on topline to revive industry-wide demand confidence which has been on hold post the Infosys report.
2) Almost a third of incremental growth came from re-sale of equipment & software licenses. These are just pass-through revenues.
3) Lower than expected margin improvement of 213 basis points (2.13 per cent) against expectations of 240-250 basis points (2.4-2.5 per cent)
4) Entire margin improvement driven by forex benefit
5) Volume growth of 3.2 per cent against estimates of 4 per cent: Ex-hardware volume growth of 1.7 per cent USD against 2.9 per cent estimates
Stock and sector View (CLSA):Cautious on IT
Underperform on TCSIn our view, stock upsides for TCS and other IT stocks remain contingent on confidence in FY13 dollar-revenue growth taking root. The current set of results from Indian techs (including TCS) has failed to give that confidence just yet.
We believe the 15 per cent plus growth numbers built in for tier-1 stocks in FY13 remains at risk on the downside. This will limit valuation multiples for tier-1 Indian techs.
Any adverse move in the currency which has aided stock moves so far can further impact earnings ahead.