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TCS Q1FY13: A leader's performance

Reliance Securities | Published: 13 Jul, 2012  | Source : | Follow Author | Add to my Favourites

Key highlights of the Q1FY13 result

- In USD terms, revenues witnessed an impressive growth of 3.0% QoQ to USD2,728mn (4.0% qoq on constant currency basis), which was in-line with Reliance Securities' expectations

- In INR terms, revenues grew 12.1% QoQ to Rs14,869cr, as the top-line growth was further assisted by 9.7% qoq depreciation of INR

- Encouraging volume growth of 5.3% QoQ

- Pricing declined by ~1% QoQ in Q1FY13

- Strong growth across all geographical markets (barring India)

- Vertical wise revenue growth was broad based except for Energy & Utilities

- Growth was broad based across Service lines, BPO revenues grew ~16.5% QoQ

- Revenue growth from Top 5 and Top 10 clients was muted at ~0.9% QoQ and 0.7% QoQ respectively

- EBIT margin declined negligibly (20bp) on account of wage hikes, higher visa costs and strong recruitments (TCS hired more than 30,000 employees in last 2 quarters)

- TCS reported Net Profit increase of 11.5% QoQ to Rs3,281cr

- It added 29 new clients during the quarter

- Number of USD50mn clients increased from 43 to 46 in last quarter

- Hiring continued to be robust with gross addition of 13,831 employees (net - 4,962)

- Utilization rates increased from 80.6% to 81.3% (excluding trainees)

- Attrition rate in IT services declined further from 11.2% to 10.9% (on LTM basis)

Outlook and Valuation

TCS continued to report strong results with healthy volume growth. Further, the growth has been broad based in terms of all aspects (i.e. verticals, service lines and geographies) despite the current uncertain macro-economic environment. Though management remains cautious in light of the present scenario, it has indicated that the deal pipeline remains robust across all verticals and regions including BFSI. Moreover, TCS has maintained its hiring guidance of 50,000 employees, which indicates that the current growth is likely to be sustained in the coming quarters. TCS FY13 top-line growth to be ahead of NASCCOM’s forecast. Reliance Securities has broadly maintained their FY13E & FY14E estimates, as TCS continues to deliver on expected lines. Consequently, Reliance Securities also maintains their target price of Rs1,350 based on their FY2014E EPS of Rs75.3 and target multiple of 18x. Thus, Reliance Securities maintains an Accumulate on the stock.

Risks to the view

- The uncertainties plaguing the US and European economies can lead to volatility in the earnings in the short term

- Reliance Securities has factored in USD/Rs rate of Rs53 and Rs52 for FY2013E and FY2014E respectively. Any sharp appreciation in INR will negatively impact their estimates

- Any delay in commencement of deals or cancellation due to slowdown in US can result in deviation from their estimates

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Nilesh Soman
CFP - Keynotes Financial Opiniery

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