TCS reported revenue growth of 7%QoQ (6%QoQ @cc) to USD2,144mn, in-line expectations, with a volume growth of 5.7%QoQ. It exceeded expectations at bottomline to report EPS of Rs11.9. Strong hiring continues (20,219 in Q3).

Revenue momentum continues

TCS reported revenue of Rs96.63bn, 4.1%QoQ growth factoring volume growth of 5.7%QoQ, pricing increase of 1.2%, offshoring shift impact of (1.7%)QoQ and exchange rate affect of (1.1%)QoQ. EBIT margin increased 7bpsQoQ to 28.1% despite rupee appreciation. It has higher other income due to higher yield on investments and forex gain of Rs520mn vs. forex loss of Rs537mn in Q2. Tax rate at 18.6% was lower than Q2 (18.9%). EPS was Rs11.9 (Consensus estimate Rs11.1, PINCe Rs10.9).

BFSI witnessed strong growth, US & Europe outperform

BFSI and retail grew 8.4%QoQ and 7%QoQ, respectively. Media, transportation and hi-tech at a low base grew strongly by 23%QoQ, 13.7%QoQ and 16.3%QoQ, respectively. US and Europe, each grew 6.4%QoQ in constant currency. India and Latin America declined due to lack of project renewals. IMS and BPO outperform with 19.5%QoQ and 11.9%QoQ growth. ADM grew relatively slower at 2.9%QoQ.

35 new clients added and consecutive quarter of highest ever employee gross adds

Top client grew just 3%QoQ but top 10 clients grew 7%. Significant addition in USD20mn category clients. TCS had highest-ever gross addition of 20,219 (19,293 in Q2). Attrition rate rose 30bpsQoQ to 14.4%. Utilisation rate (incl. trainees) declined 60bpsQoQ to 77.1%.

Outlook- Revised hiring guidance to 62-65k for FY11, plan campus offers of 37k for FY12 (24k already given)

TCS has achieved its revised target of gross hiring of 50,000 employees (earlier 40,000) in 9MFY11 and expects to add 12-15k more in Q4FY11. The deal pipeline is strong and outlook is robust which is reflected in strong hiring momentum. TCS has managed costs well to sustain high EBIT margin. TCS has outperformed Infosys, continuously for some quarters and the premium in earnings multiples is likely to continue. We have introduced FY13 financials. Maintain “BUY” recommendation on TCS with a revised target price of Rs1,350.