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Transcript of TCS, 11th March, 2013
7/29/2019 TCS, 11th March, 2013
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Please refer to important disclosures at the end of this report 1
Tata Consultancy Services (TCS) hosted an analyst briefing with Mr. Rajesh
Gopinathan, CFO and Mr. Kedar Shirali, Head of Investor Relations. Following
are the key takeaways:
To meet the guidance in constant currency (CC) terms for FY2013, above
Nasscom’s industry estimate: TCS is on track to meet its full-year plan shaped in
April 2012. For 4QFY2013, the management indicated that USD revenue growth
is expected to be similar to 3QFY2013 (3.3% qoq). Pricing is expected to remain
stable and growth is expected to be driven by volumes in the quarter. We model
in 3.2% qoq growth in 4QFY2013. As per our estimates, revenues in FY2013should grow by 15.8% in CC, well above 13.8% in reported currency and above
the upper end of the Nasscom’s earlier guidance of 11-14%.
Operating margin expected to slip marginally: EBIT margin too, should meet the
company’s target of 27% for FY2013. We model 26.9% margin in 4QFY2013
(which implies 27.1% EBIT margin for FY2013), a decline of 25bp qoq on the
back of one-time lawsuit settlement of US$29.75mn.
FY2014 to be better than FY2013: Management sounded confident of FY2014
being a better year than FY2013 as clients seem to have a better handle on the
kind of projects they want to execute and have made plans to spend on IT
considering all the challenges. Healthy pipeline, broad-based deal signings and
upturn in discretionary spending, all these factors have collectively lend
confidence to the company’s outlook of FY2014 being a better year than FY2013.
The overall pricing in the market is stable. Among geographies, US is seeing
broad-based optimism. Better outlook in US is driven by some uptick in
discretionary spending, where the demand is more project centric. Also,
management expects that with the political environment improving, visa regime
should get more benign. In Europe, while the broader economy remains weak,
there is increasingly greater acceptance of the outsourcing model and nature of
work is largely skewed towards traditional services.
Other key points: During 4QFY2013, if the currency remains range bound, TCS
expects to see an estimated forex gain of ~ ` 75cr (vs. forex loss of ` 73cr in
3QFY2013) which would boost the reported net profit. The company has not
taken a call on wage hikes yet. It will wait till the end of the quarter before
finalizing the same. Overall, demand optimism remains intact with few pockets of
weakness like telecom and hi-tech. The company expects BFSI to grow in line with
the company average going ahead.
Valuation: TCS has executed well over the past many quarters and has
outperformed the CNX IT by ~4% YTD and currently trades at 22.3x FY2013E
and 20.3x FY2014E EPS (~20% premium to Infosys). After the sharp upmoveYTD, we believe that TCS valuations are rich and build in a relatively strong
operational performance. Keeping that in notice, we maintain Neutral rating on
the stock with target price being `1,525.
NEUTRALCMP ` 1,584
Target Price -
Investment Period 12 Months
Stock Info
Sector
Net debt ( ` cr) (13,700)
Bloomberg Code
Shareholding Pattern (%)
Promoters 74.0
MF / Banks / Indian Fls 6.5
FII / NRIs / OCBs 14.8
Indian Public / Others 4.7
Abs. (%) 3m 1yr 3yr
Sensex 3.8 24.2 13.9
TCS (10.1) 5.5 66.9
Face Value ( ` )
IT
Avg. Daily Volume
Market Cap ( ` cr)
Beta
52 Week High / Low
236,009
0.6
1
1,438/1047
143,960
BSE Sensex
Nifty
Reuters Code
TCS@IN
19,244
5,858
TCS.BO
Ankita Somani
+91 22 39357800 Ext: 6819
TCS
Analyst Meet Update
Company Update | IT
March 8, 2013
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TCS | Company Update
March 8, 201 2
Exhibit 1: Key Financials (Consolidated)
Y/E March (` cr) FY2010* FY2011 FY2012 FY2013E FY2014E
Net sales 30,028 37,324 48,891 62,985 71,548
% chg 8.0 24.3 31.0 28.8 13.6
Net profit 6,873 8,715 10,636 13,883 15,276
% chg 32.9 26.8 22.0 30.5 10.0
EBITDA (%) 28.9 30.0 29.5 28.8 28.5
EPS (`) 35.1 44.5 54.3 70.9 78.1
P/E (x) 45.1 35.6 29.2 22.3 20.3
P/BV (x) 14.8 12.2 9.5 7.4 6.0
RoE (%) 32.8 34.3 32.7 33.0 29.5
RoCE (%) 28.8 32.0 32.8 32.2 29.8
EV/Sales (x) 10.0 8.1 6.1 4.7 4.1
EV/EBITDA (x) 34.8 27.0 20.8 16.3 14.3
Source: Company, Angel Research; Note: * In US GAAP
Exhibit 2: Recommendation summary
Company Reco CMP Tgt. price Upside FY2014E FY2014E FY2011-14E FY2014E FY2014E
(`) (`) (%) EBITDA (%) P/E (x) EPS CAGR (%) EV/Sales (x) RoE (%)
HCL Tech Neutral 773 - - 20.7 14.6 13.6 1.7 22.9
Hexaware Buy 90 113 25.1 18.3 8.9 4.2 0.9 21.0
Infosys Neutral 2,970 - - 28.8 17.2 5.9 3.2 21.3
Infotech Enterprises Accumulate 173 184 6.3 17.4 8.9 10.3 0.5 13.6
KPIT Cummins Buy 109 134 22.9 15.2 8.5 16.9 0.7 20.5
Mahindra Satyam Neutral 126 - - 20.2 11.1 3.6 1.3 23.7Mindtree Neutral 881 - - 19.3 10.2 17.4 1.0 21.7
Mphasis Neutral 396 - - 17.9 10.3 0.7 0.9 14.1
NIIT Buy 24 30 23.5 10.9 3.9 (2.7) 0.1 14.1
Persistent Neutral 576 - - 24.1 10.7 15.1 1.2 18.0
TCS Neutral 1,584 - - 28.5 20.3 12.8 4.1 29.5
Tech Mahindra Accumulate 1,109 1,205 8.6 19.6 10.0 7.9 1.9 22.3
Wipro Neutral 445 - - 19.4 16.1 6.8 1.9 17.9
Source: Company, Angel Research
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TCS | Company Update
March 8, 201 3
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Disclosure of Interest Statement TCS
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
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TCS | Company Update
March 8, 201 4
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Research Team
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Vaibhav Agrawal VP-Research, Banking [email protected]
Bhavesh Chauhan Sr. Analyst (Metals & Mining) [email protected]
Viral Shah Sr. Analyst (Infrastructure) [email protected]
Sharan Lillaney Analyst (Mid-cap) [email protected]
V Srinivasan Analyst (Cement, FMCG) [email protected]
Yaresh Kothari Analyst (Automobile) [email protected]
Ankita Somani Analyst (IT, Telecom) [email protected]
Sourabh Taparia Analyst (Banking) [email protected]
Bhupali Gursale Economist [email protected]
Vinay Rachh Research Associate [email protected]
Amit Patil Research Associate [email protected]
Shareen Batatawala Research Associate [email protected]
Twinkle Gosar Research Associate [email protected]
Tejashwini Kumari Research Associate [email protected]
Technicals:
Shardul Kulkarni Sr. Technical Analyst [email protected]
Sameet Chavan Technical Analyst [email protected]
Sacchitanand Uttekar Technical Analyst [email protected]
Derivatives:
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