tcs

IT Bellwether…...

INDIA

Institutional Research

Initiating Coverage

IT Sector Tata Consultancy Services Ltd

Investment Rationale

TCS is the largest firm in India providing IT services and solutions to a diverse set of

global and regional clients through its 105 global delivery centers in 44 countries with a

headcount of ~276,000 employees. It derives majority of the revenues (~56%) from US

region followed by Europe (~27%) and Rest of the World (~17%). The company derives

~75% of its revenue from BFSI(43%), retail (14%), telecom (9.6%), manufacturing

(8.4%) verticals with the balance from energy & utilities, transportation, healthcare and

others.

Client addition – would stay robust: We believe IT spends are likely to be cut, yet

India would continue to remain as preferred offshore destination for IT services on the

back of capability and cost effectiveness. Global IT vendors are likely to expand India

operations further and the effect of these trends is likely to have buoyant effect for com-

panies like TCS

Proportions of fixed price contracts are steadily increasing : TCS has the largest

proportion of revenues accruing from fixed price projects among its offshore peers. The

proportion of fixed price contracts averaged at around 48% between FY07 and FY09,

the ratio hovered at around 48.5% between FY10 and FY13

India's off-shoring potential : We maintain our belief that India will continue to domi-

nate the IT off-shoring market long time into the future. This is mainly because of the

fact that global clients are now trying to justify every dollar they spend towards technol-

ogy outsourcing. Hence, there is a growing pressure on technology budgets that will

force companies in the US and Europe to outsource to the low cost but high value desti-

nations like India.

Outlook : We initiate coverage on TCS with a Neutral rating and a 12 months target

price of Rs 2100. The key reason for our neutral rating is upside is priced in and we be-

lieve USD/INR prices have bottomed out. However, we are optimistic on TCS’s market

opportunity and competitive positioning. At CMP TCS currently trades at 21.9x at its

FY15E EPS of Rs.95.5, which reflects a significant premium vis-a-vis other large cap IT

companies. We believe the company to maintain its current operating margins and ex-

pect to plough back currency gains into the business. We further believe the large size

of the addressable global market, with relatively low current level of penetration sug-

gests significant headroom for future growth.

Key Data

Bloomberg Code TCS IN

Reuters Code TCS.BO

NSE Code TCS

BSE Code 532540

Current Share o/s (mn) 1957.2

Mkt Cap (Rs bn) 4,018

52 WK H/L (Rs) 2078/1055

Face Value (Rs) 1.0

Shareholding Pattern (%)

Promoters 74

FII 15.7

DII 5.9

Others 4.4

Price Performance (%)

Period 1M 6M 1yr

TCS -5.4 35.7 49.3

Nifty 4.1 -3.7 1.1

Date: 8th October 2013

Analyst:

Vikas Jain

[email protected]

Ph. No. 022-30641653

Rating Nuetral

Target Price 2,100

CMP 2,089

Upside (%) 0.5%

Nifty 5,906

Sensex 19,895

Source: Company, Networth Research

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TCS Nifty

Particulars (INR Cr) 2012A 2013A 2014E 2015E

Income from Operations 48,894 62,989 81,643 89,705

growth 31.0% 28.8% 29.6% 9.9%

EBIT 13,517 16,960 23,093 25,049

growth 29.4% 25.5% 36.2% 8.5%

PAT 10,413 13,917 17,291 18,691

growth 14.8% 33.6% 24.2% 8.1%

Key Ratios

EBITDA Margin 29.5% 28.6% 30.2% 30.3%

PAT Margin 21.3% 22.1% 21.2% 20.8%

ROE % 35.2% 36.0% 34.7% 30.1%

Initiating Coverage Networth Research is also available on Bloomberg and Thomson 2


Investment Rationale

Client addition – would stay robust

We believe IT spends are likely to be cut, yet India would continue to remain as preferred

offshore destination for IT services on the back of capability and cost effectiveness. Global IT

vendors are likely to expand India operations further and the effect of these trends is likely to

have buoyant effect for companies like TCS, as the offshore outsourcing is becoming more

modular, as single large deal are broken into multiple pieces. To tap the same, TCS has

been continuously expanding its services and capabilities to become the preferred vendor for

any large offshore outsourcing deals.

From the below table it has shown that the trend in growth of revenue per client has declined

from 24.3% in FY11 to 19.9% in FY13.

However, the numbers of active clients have been increasing from last three years.

0.0%

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30.0%

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FY08 FY09 FY10 FY11 FY12 FY13

Revenue per client growth

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FY09 FY10 FY11 FY12 FY13

Active Clients New Clients

Revenue per client

(INR Cr)


Proportions of fixed price contracts are steadily increasing

TCS has the largest proportion of revenues accruing from fixed price projects among its off-

shore peers. The proportion of fixed price contracts averaged at around 48% between FY07

and FY09, the ratio hovered at around 48.5% between FY10 and FY13. Though managing a

large fixed price projects has its own limitations, since margins can get hurt if a particular pro-

ject encounters time and cost over runs, but TCS has long experience in managing fixed

priced projects and we believe more and more offshore projects are likely to move towards

fixed price from the time and material ones.

India's off-shoring potential

We maintain our belief that India will continue to dominate the IT off-shoring market long time

into the future. This is mainly because of the fact that global clients are now trying to justify

every dollar they spend towards technology outsourcing. Hence, there is a growing pressure

on technology budgets that will force companies in the US and Europe to outsource to the low

cost but high value destinations like India.

Moreover, clients are now getting into the phase of 2nd generation outsourcing. This means

that they are looking at more than one vendor to manage their outsourcing work. This has

considerably increased the addressable market. We believe that companies like TCS, with

their wide service offerings and execution capabilities, will emerge as winners on the back of

economic benefits that they provide. There are concerns with regard to re-shoring of IT ser-

vices related work particularly in the US, given the current political climate. However, the cost

advantages are still significant. For example, an 'entry level' engineer in India still costs less

than 15% of his counterpart in the US, which clearly allows India to retain its position as a top

outsourcing destination. Further, despite the rapid growth over the past two decades, India's

market share in global IT services stands at just 7%, leaving ample room for growth.


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Q3

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Time & Material Fixed Price & Time


Newer services lines – can be offshored

TCS has the most complete set of services offerings within its peers. If we look at the services

mix closely, then the newer services’ contribute about 40% of its revenues, significant portion

of it can be moved offshore. We are already seeing the trend as some of the earlier onsite

work is moved to offshore and the same has been growing at sequential quarter basis over

the last many quarters. TCS has been able to hold on to its pole position of the largest player

in its focus verticals even as competitors have gained market share. TCS has the largest pres-

ence in key verticals like BFSI, manufacturing as well as in emerging verticals like life sci-

ences. It is the second largest vendor in other verticals like telecom, retail and transportation.

Thus it has spread its revenues across verticals, which can be captured from the subsequent

table.

At the end of June 2013, TCS boasted of one of the strongest deal pipelines in the IT sector.

The order backlog included 53 clients in the greater than US$ 50 m category and 19 clients in

the greater than US$ 100 m category. Further, TCS grew the clients in those buckets by

60.6% and 90% respectively between June 2011 and June 2013. A comparative study of the

deal pipelines among TCS, Infosys and Wipro between June 2011 and June 2013 reveals that

TCS enjoyed the highest growth across all client brackets (Wipro's growth in the greater than

US$ 100 m category is an exception). The Latest management comments indicate that TCS is

expecting discretionary projects and overall client spends to revive in the US. Besides, the

European clients are also interested in awarding large deals based on traditional service offer-

ings

TCS Infosys Wipro

US$ 1mn+ clients 38.9% 24.6% 12.3%

US$ 5mn+ clients 41.1% 17.5% 11.8%

US$ 10mn+ clients 45.9% 11.2% 12.7%

US$ 20mn+ clients 36.3% 2.5% 10.1%

US$ 50mn+ clients 60.6% 28.1% 12.5%

US$ 100mn+ clients 90.0% 36.4% 150.0%


Segment Q1

FY11 Q2

FY11 Q3

FY11 Q4

FY11 Q1

FY12 Q2

FY12 Q3

FY12 Q4

FY12 Q1

FY13 Q2

FY13 Q3

FY13 Q4

FY13 Q1

FY14

IT Solutions and Services

ADM (Appl. Dev. Magt) 47.9 46.8 45 46.1 46.2 44.7 44 44.4 43.4 43.1 42.4 42.4 42.3

Enterprise Solutions 15.2 15.9 14.9 15.7 15.7 15.8 15.9 15.2 15.2 14.9 15.1 15.5 15.1

Assurance Services 6.4 6.6 7.1 7 7.3 7.6 7.6 7.3 7.6 7.7 7.7 7.8 8.1

Others Service lines

Engineering & Industrial Services 4.8 4.9 4.8 4.8 4.6 4.8 4.5 4.6 4.6 4.6 4.7 4.6 4.7

Infrastructure Services 8.7 9.4 10.5 9.1 9.5 9.6 10.6 10.4 10.6 11.4 11.7 12.1 11.9

Global Consulting 2.1 2.1 2.3 2.1 2.2 2.6 2.8 2.7 2.8 3 3.2 3.1 3.5

Asset Leveraged Solutions 3.7 3.4 4 3.6 3.6 4 3.8 3.9 2.8 2.7 2.8 2.5 2.5

Business Process Services 11.2 10.9 11.4 11.6 10.9 10.9 10.8 11.5 13 12.6 12.4 12 11.9


TCS vs Infosys

Infosys is one the nearest competitor of TCS. Both these companies accounts for more than

15% of the total revenue of Indian IT companies. A brief overview of both the company’s is

reflected below:

Revenue Growth



Headcounts & Attriction Rate

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Q2

FY11

Q3

FY11

Q4

FY11

Q1

FY12

Q2

FY12

Q3

FY12

Q4

FY12

Q1

FY13

Q2

FY13

Q3

FY13

Q4

FY13

Q1

FY14

TCS Infosys

5%

7%

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11%

13%

15%

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100,000

150,000

200,000

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300,000

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FY11

Q2

FY11

Q3

FY11

Q4

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Q1

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Q4

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Q3

FY13

Q4

FY13

Q1

FY14

Headcount (LHS) & Attrition (RHS)

TCS Infosys TCS Infosys


Client Metrics (nos)

Outlook & Valuation

We initiate coverage on TCS with a Neutral rating and set a 12– month target price of Rs.2100 (valuing the company at 22x at its FY15E EPS). The key reason for our neutral rating is up-side is priced-in and we believe USD/INR prices are bottoming. However, we are optimistic on TCS’s market opportunity and competitive positioning, we believe the TCS offer limited upside in near term given current valuation. At CMP TCS currently trades at price to earning multiple of 21.9x at its FY15E EPS of Rs.95.5, which reflects a significant premium vs other large cap IT companies. TCS has indicated that client spending trends will continue to remain positive on the back of pick up in discretionary spending across US and Europe with European clients continuing to focus on cost optimizing measures. We believe the company to maintain its current operating margins and expect to reinvest most of the currency gain back in the business. Further the large size of the addressable global market, with relatively low current level of penetration im-plies significant headroom for future growth.TCS has positioned itself well for the growth in business with an aligned strategy, structure and capabilities. On the macro level the economic slowdown in the US and Europe has eased, but uncertainty remains. The US economy has started improving; but growth is still tad low. Further, the on-

going issues of debt ceiling still remains headwinds Also Business models like cloud comput-

ing and other pay-for-use models are beginning to gain traction in most industries.


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FY10 FY11 FY12 FY13

TCS Infosys HCL Tech Wipro




Improvement in EBIT margins in

FY14E is expected primarily due

to rupee depreciation.

Revenue growth in FY15E may fall

down to 11% as we expect pricing

pressure may continue and expects

rupee to appreciate


Trend in Revenue growth

Revenue INR Cr

Trend in EBIT Margin

EBIT INR Cr

Cash Flow from Operations

(INR cr)

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20,000

FY11 FY12 FY13 FY14E FY15E

Cash Flow from Operations growth

26.0%

26.5%

27.0%

27.5%

28.0%

28.5%

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5,000

10,000

15,000

20,000

25,000

30,000


EBIT EBIT Margin

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20.0%

25.0%

30.0%

35.0%

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Revenue Revenue growth



Geography Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14

America

North America 53.4 53.3 53.6 53.5 52.8 52.6 52.1 54.1

Latin America 3 3.1 3.1 3.3 3.4 3.3 3.5 2.4

Europe

UK 15.5 15 15.2 17 17.1 17.5 16.8 17

Continental Europe 10.1 10.5 9.8 9.6 9.5 9.4 9.4 9.9

India 8.3 8.4 8.5 7.1 7.5 7.6 8.8 7.6

Asia Pacific 7.5 7.6 7.7 7.4 7.6 7.5 7.3 6.9

MEA 2.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1

Vertical Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14

BFSI 43.5 43.3 42.2 43 42.8 43 43.5 43

Telecom 10.7 10 10 10.3 10.3 9.5 9.3 9.6

Retail & Distribution 12.1 12.3 12.5 13.2 13.4 13.4 13.4 14

Maufacturing 7.8 7.8 7.9 7.9 8.2 8.5 8.5 8.4

Hi-Tech 5.9 5.9 6 6 5.9 5.8 5.7 5.5

Life Science & Healthcare 5.3 5.3 5.3 5.3 5.2 5.2 5.1 5.5

Travel & Hospitality 3.8 3.8 3.7 3.7 3.6 3.6 3.4 3.4

Energy & Utilities 4.3 4.1 3.8 3.6 3.6 3.8 3.8 3.7

Media & Entertainment 2.1 2.2 2.2 2.2 2.2 2.1 2.1 2.1

Others 4.5 5.3 6.4 4.8 4.8 5.1 5.2 4.8

Clients Contributions Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14

US$ 1mn+ clients 495 512 522 527 538 551 638 657

US$ 5mn+ clients 230 235 245 259 269 273 290 309

US$ 10mn+ clients 155 161 170 175 182 185 211 216

US$ 20mn+ clients 94 95 99 105 108 114 121 124

US$ 50mn+ clients 36 39 43 46 45 47 52 53

US$ 100mn+ clients 12 14 14 14 14 16 17 19

Utilization Rate Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14

Including Trainees 76.4 74 71.3 72.3 72.8 72.1 72.2 72.5

Excluding Trainees 83.1 82 80.6 81.3 81.6 81.7 82 82.7

Operational Metrics


Industry Outlook

Re-shoring of IT services: Clients are now getting into the phase of 2nd generation outsourc-

ing. This means that they are looking at more than one vendor to manage their outsourcing work. This has considerably increased the addressable market. We believe that companies like TCS, with their wide service offerings and execution capabilities, will emerge as winners on the back of economic benefits that they provide. There are concerns with regard to re-shoring of IT services related work particularly in the US, given the current political climate. However, the cost advantages are still significant. For example, an 'entry level' engineer in India still costs less than 15% of his counterpart in the US, which clearly allows India to retain its position as a top outsourcing destination. Further, despite the rapid growth over the past two decades, India's market share in global IT services stands at just 7%, leaving ample room for growth.

Labour arbitrage: Labour arbitrage has been the competitive edge of the Indian software sec-

tor over the last few years. However, this seems to be threatened now by MNCs’ who are rep-licating the Indian outsourcing model and setting up bases in the country. Going forward, the advantage of low employee costs could peter out and the sector could get commoditized.

Forex Volatility: In our view exchange rates remain a significant factor in analyzing growth in

any single currency. Movement in the dollar relative to other currencies complicates the inter-pretation of forecasts and can distort spending comparisons between regions that use differ-ent currencies

Liquidity not a challenge: The liquidity position of IT services in 2013 will be comfortable,

backed by their huge cash flow, low debt levels and positive free cash flow from recurring and

critical nature of IT services. However demand contraction due to double dip recession or any

increase in M&A activity, large dividend, shares buyback and expansion in receivable days will

be the key risks to liquidity.

Outlook:

With some pick-up in US and stability in Europe, demand is likely to improve going ahead. The decision-making cycle seems to be improving also revenue growth should see some pick-up in coming quarters. The worldwide spending on technology and related services in 2012 was USD 1.9 trillion2, a growth of 4.8% over 2011. Spend on IT, BPO and software products, continued to have the majority share of 58% of total IT spend, standing at USD 1 trillion. While banking, financial services & insurance (BFSI) and manufacturing remained the largest verti-cals in terms of total share in IT spending, emerging verticals such as healthcare, retail, gov-ernment and utilities were the drivers of incremental growth in 2012. The worldwide IT out-sourcing (ITO) market is forecast to reach $288 billion in 2013, a 2.8 percent increase in U.S. dollars (and 5.1 percent in constant currency*) from 2012, according to Gartner, Inc. Com-pared with Gartner's previous forecast, nearly all ITO segments are now forecast to grow more slowly during 2013. During Q2 FY14, we expect 2-5 percent qoq constant currency for large cap IT companies, we believe currency volatility will boost the margins across the board and also it would help the companies to mitigate the hike in wages which will increase the EBIT margins or remain sta-ble. While US Immigration bill continues to be an overhang, we believe this is the event risk for the sector but the noise has definitely subsided.


Concerns

Forex Volatility

The Indian rupee has been very volatile against USD over the past few months (See graph).

The exchange rate movement is beyond the control of the companies. Volatility in forex in-

creases the volatility in revenues of the Indian IT services, as 80 percent of the billing of the IT

companies are in foreign currency. Also the volatility in currency also does not give any scope

for the IT companies to make any kind of planned move. With around 90% of TCS’s billing in

foreign currency, Rupee’s volatility is a huge risk for the company.

Highly dependent on BFSI vertical

Among the top five Indian IT companies, TCS has highest exposure in BFSI vertical. Around

43% of the total revenue of TCS is generated from this vertical; this high exposure in BFSI

increases the risk of taking a hit if the vertical underperform as there is lot of ongoing troubles

in the vertical post 2008 crisis. However, TCS has maintained the contribution of BFSI de-

spite of global financial crisis was at a high. Further, during Q1 FY14 out of 10 large deals,

two of them were in the BFSI vertical. Management has also indicated that banking clients

are focusing on cost reduction and we believe TCS has all the capability to provide them with

their experience.

Global Slowdown

There is an uncertainty in the whole global economic environment, especially in the devel-

oped countries like US and Europe, which contributes more than 75% percent of the revenue

of the Indian IT sector. Thus, if situation worsen in these regions, the growth prospect of the

company may get adversely impacted.

Source: Bloomberg

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As compared to large Cap IT companies TCS is trading at a premium, At CMP TCS currently

trades at price to earning multiple of 21.9x at its FY15E EPS of Rs.95.5, which reflects a significant

premium vs other large cap IT companies., as other large IT companies trade in the range of 14-

18x, which indicates TCS is trading at a premium to its peer group. We believe TCS to maintain its

leadership position over the next two years, backed by a strong and satisfied client base.

Source: Networth Research

Peer Comparison

TECH MAHINDRA, 11.5

Wipro, 16.5

HCL TECH, 15.1

Infosys, 16.8

Cognizant, 19.0

TCS, 22.8

0.0

5.0

10.0

15.0

20.0

25.0

P/E

Source: Networth Research

Particulars TCS Infosys HCL Tech Wipro Tech Mahindra

CMP (closing on 7th Oct) 2,089 3,021 1,119 482 1,443

Market Cap (INR BN) 3,980 1,732 765 1,190 326

EV (INR Cr) 3,852,839 1,530,036 728,829 1,091,851 333,306

No. of Shares o/s (no.) 1,957 571 697 2,463 128

PE (x) 23.5 16.0 15.4 16.5 11.8

FY14E EPS 88.8 189.0 72.6 29.3 122.1

TTM EPS (INR) 73.9 166.4 59.0 26.6 100.9

5 year Avg PE (x) 20.3 20.4 15.2 18.3 10.0

ROE (%) 36.89 23.44 31.29 22.71 32.60

5 year Avg ROE (%) 40.13 30.05 27.33 25.29 34.56

Payout Ratio (%) 30.98 25.58 20.40 28.11 4.98

Div Yield (%) 1.37 1.68 1.30 1.64 0.49

OPM (%) 26.93 25.88 20.25 17.51 18.23

Net Profit Margin (%) 22.09 23.37 15.93 17.73 18.74

Revenue (INR mn) 629,895 403,520 257,337 374,256 68,731

Net Income (INR mn) 139,173 94,290 40,989 66,359 12,878



Nifty vs NSE IT vs TCS

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TCS Nifty


The stock has outperformed the market in past one year. CNX IT has given the return

of 27% in past 12 months while TCS has given the return of 49% in last one year and

the benchmark Nifty has gained only 1.1% in the same period. While the lack of a fea-

sible investment option in a slowing economy and the benefit of weaker home cur-

rency to export oriented companies has helped the stock vault in a short period, the

sharp jump raises concerns whether it would be able to sustain and add to its gains

further in the near term.


Financial Summary


Particulars 2011A 2012A 2013A 2014E 2015E

Sources Of Funds

Shareholders Funds

Share Capital 296 296 296 296 296

Share Application Money - - - - -

Reserves & Surplus 24,209 29,284 38,350 49,589 61,738

Total Shareholders Fund 24,505 29,579 38,646 49,885 62,034

Minority Interest 458 559 695 695 695

Long Term Borrowings 38 115 131 170 187

Deffered Tax Liability 109 173 235 235 235

Total loans 363 618 848 1,099 1,208

Total Liabilities 25,435 30,929 40,424 51,915 64,172

Application Of Funds

Fixed Assets

Gross Block 7,792 9,448 11,623 15,045 18,805

Less: Depreciation 3,545 4,329 5,376 6,945 9,051

Net Block 4,247 5,119 6,247 8,100 9,754

Capital WIP 1,194 1,446 1,895 1,895 1,895

Investments 1,079 578 968 2,449 2,691

Deffered Tax Assets 160 256 310 310 310

Current Assets

Investories 23 18 21 82 90

Sundry Debtors 8,195 11,520 14,077 19,013 21,136

Cash And Bank balance 4,701 6,003 6,769 8,947 16,326

Other Current Assets 2,151 3,478 4,888 4,899 5,831

Loans & Advances 1,967 2,255 5,821 8,164 8,971

Total Current Assets 17,036 23,275 31,577 41,104 52,353

Less: Current Liabilities - - - - -

Current Liabilities 4,527 5,671 7,609 8,981 9,868

Provisions 2,719 4,794 4,233 4,233 4,233

Total Current Liabilities 7,246 10,465 11,843 13,214 14,101

Net Current Assets 9,790 12,810 19,734 27,890 38,252

Total Assets 25,435 30,929 40,424 51,915 64,172

Consolidated Balance Sheet INR Cr





Income from Operations 37,325 48,894 62,989 81,643 89,705

growth 31.0% 28.8% 29.6% 9.9%

Total Expenditure 26,146 34,459 44,950 56,981 62,550

EBITDA 11,178 14,435 18,040 24,662 27,155

EBITDA Margin 29.9% 29.5% 28.6% 30.2% 30.3%

Depreciation 735 918 1,080 1,569 2,106

EBIT 10,443 13,517 16,960 23,093 25,049

Interest 26 22 48 121 133

Other Income 604 428 1,178 1,380 1,412

PBT 11,021 13,923 18,090 24,352 26,329

Tax 1,831 3,400 4,014 6,768 7,322

PAT 9,068 10,413 13,917 17,291 18,691

PAT Margin 24.3% 21.3% 22.1% 21.2% 20.8%

Consolidated P&L INR CR


PAT 9,068 10,413 13,917 17,291 18,691

Depreciation 735 918 1,080 1,569 2,106

Non-Cash Adjustments -999 -1,260 -1,693 - -

Change in working capital -2,190 -3,063 -1,689 -5,978 -2,983

Cash Flow from operation 6,614 7,008 11,615 12,881 17,814

Capital Expenditure -1,827 -2,007 -2,640 -3,422 -3,760

Change in Investment (Dec)/inc 2,002 447 -520 -1,481 -242

Other investing cash flows -1,637 -1,168 -2,925 - -

Cash Flow used in investing -1,462 -2,727 -6,086 -4,903 -4,002

Issue of equity' - - - - -

Issue/Repay Debt -4 -1 -3 251 109

Dividend paid -4,584 -3,880 -5,703 -6,052 -6,542

Other financing cash flows -70 -74 -23 - -

Cash Flow from Financing -4,659 -3,955 -5,729 -5,801 -6,433

Net Cash 494 326 -200 2,178 7,379

Adjustment of Exchange rate 30 119 48 - -

Opening Balance 1,024 1,549 1,993 1,841 4,019

Closing Balance 1,549 1,993 1,841 4,019 11,398

Cash Flow Statement (INR in Cr)





Revenues (INR Cr) 37,325 48,894 62,989 81,643 89,705

EBITDA (INR Cr) 11,178 14,435 18,040 24,662 27,155

Net profit (INR Cr) 9,068 10,413 13,917 17,291 18,691

Capital Employed (INR Cr) 25,435 30,929 40,424 51,915 64,172

Market Cap(INR Cr) 355,236 355,236 355,236 355,236 355,236

Market Cap/Sales, x 9.5 7.3 5.6 4.4 4.0

Gross Block (INR Cr) 7,792 9,448 11,623 15,045 18,805

EPS, Rs 46.33 53.21 71.11 88.34 95.50

CEPS, Rs 50 58 77 96 106

BVPS, Rs 125.2 151.1 197.5 254.9 316.9

P/E, x 39.2 34.1 25.5 20.5 19.0

P/BV, x 14.5 12.0 9.2 7.1 5.7

EV/EBITDA, x 31.7 24.5 19.6 14.4 13.0

EV/Sales, x 9.5 7.2 5.6 4.3 3.9

Valuation Summary


EBIDTA % 29.9% 29.5% 28.6% 30.2% 30.3%

PAT % 24.3% 21.3% 22.1% 21.2% 20.8%

ROE % 37.0% 35.2% 36.0% 34.7% 30.1%

ROCE % 41.1% 43.7% 42.0% 44.5% 39.0%

ROA % 35.7% 33.7% 34.4% 33.3% 29.1%

Growth Ratios (%)

Income growth 280.9% 31.0% 28.8% 29.6% 9.9%

EBITDA growth 567.4% 29.1% 25.0% 36.7% 10.1%

PAT growth 689.9% 14.8% 33.6% 24.2% 8.1%

Turnover Ratios

Fixed Asset Turnover x 4.8 5.2 5.4 5.4 4.8

Creditors Days 46.7 34.4 36.1 37.0 37.0

Debtors Days 80.1 86.0 81.6 85.0 86.0

Ratios


Share Holding Pattern

Source: BSE

Management Profile

Mr N. Chandrasekaran is the Chief Executive Officer (CEO) of TCS. He took over as CEO in October 2009. Prior to this position, he was the Chief Operating Officer and Executive Di-rector. He joined TCS in 1987 and has over 20 years of experience in the software industry and business operations. He has a Bachelor's degree in Applied Sciences and a Master's De-gree in Computer Applications. In April 2006, he was named by Consulting Magazine, US, as one of the top 25 most influential consultants in the world.

Mr Rajesh Gopinathan, Chief Financial Officer (CFO), joined TCS from Tata Industries and

initially worked to drive TCS's newly established e-business unit in the United States. He was

appointed as the CFO in February, 2013 and steps into the shoes of the legend, Mr S. Mahal-

ingam who recently relinquished the post. Rajesh Gopinathan holds an Electronic Engineering

degree from REC Trichy and a Post Graduate Diploma in Management from IIM, Ahmedabad.

Shareholders having more than 1%

Source: BSE

Company Profile

Currently, TCS is the largest firm in India providing IT services and solutions to a diverse set of global and regional clients through its 105 global delivery centers in 44 countries with a headcount of ~276,000 employees. It derives majority of the revenues (~56%) from US region followed by Europe (~27%) and Rest of the World (~17%). TCS clocked revenues of ~INR630bn in FY13 with EBIDTA of INR180bn and EPS of INR71. It marked revenues of 48% and 52% from Time &Material and fixed price contracts respectively. Revenues from offshore and onshore operations were registered at 51% and 44%, respectively.

The company derives ~75% of its revenue from banking, insurance, manufacturing, retail and telecom verticals with the balance from energy & utilities, transportation, healthcare and oth-ers. Its vast service portfolio comprises application development and maintenance, business process management, consulting, infrastructure management, product engineering, system integration and testing services. Company’s contract portfolio consists of both fixed price and time & money contracts, with increasing contribution from fixed price contracts over the past few quarters. The company has emerged as a pioneer in IT services industry and stands among top ten IT companies in the World.

Name of the shareholders No. of Shares held Shares as % of Total No. of Shares

Life insurance corporation of India 55,568,386 2.8%

Franklin Templeton Investment Funds 30,818,141 1.6%

Promoter Holding

74%

MFs and DII's

Holding

6%

FII's16%

Others and

Public

4%

Shareholding Pattern


News & Events in last one month

TCS has set up a digital enterprise unit in Silicon Valley to club its social, mobil-

ity, analytics and cloud (SMAC) computing technology services under a single roof. a

move that may help it become the first Indian company to exceed $100 billion in

market capitalization (Oct 2013)

Goa picks TCS for criminal tracking projectL : TCS has bagged a five-year e-

governance deal to electronically link up all police stations and provide real-time

crime and criminal information in Goa. (Sep 2013)

TCS edges out rivals to bag Rs 193-cr deal from I-T Dept Tata Consultancy Ser-

vices has pipped Infosys and Wipro to bag a Rs 193 crore contract for setting up and

managing a new software platform for the Income Tax Department, it is reliably

learned. As part of the six-year contract, TCS will setup a new platform-the Income

Tax Business Application (ITBA). While the platform will be ready in 12 months, the

Tata group company will manage the project operations for five years. (Sep 2013)

TCS bags project from Macau telecom firm: In the month of Sep 2013 TCS has

been selected to deploy a new rating and billing system for CTM, a telecom service

provider in Macau. The solution, which is to be deployed in three years, will allow

CTM's customers to receive faster response to enquiries and enable them to better

manage their services and bills, according to a press statement. (Sep 2013)

TCS wins Nordic outsourcing deal: During 1st week of September 2013 TCS has

won an outsourcing deal from DNB, Norway's largest financial services group, to

render application maintenance and development services for six years. TCS will

operate across DNB's channels and IT portfolio as part of the managed services

contract. Financial details of the deal were not disclosed. In the Nordic region, TCS

employs over 5,500 professionals (Sep 2013)

TCS bags deal from Saudi Arabia: TCS have bagged a deal to implement its core

banking platform at Saudi Arabia's National Commercial Bank. International media

reports suggest that the contract, which is valid for two years, is part of the Jeddah-

based institutions' strategy to develop electronic services and provide technology-

based banking solutions. (Sep 2013)

TCS selected for Rs 200-crore I-T project As part of its latest technology upgrade

exercise, the income-tax (I-T) department has selected TCS to implement an I-T up-

grade project worth Rs 200 crore. The five-year project involves upgrading the entire

hardware and software of all the I-T department offices across the country. (Sep

2013)


Networth Research: E-mail- [email protected]

Research Analyst : Vikas Jain

Land Line : 022-30641653

Key to NETWORTH Investment Rankings

Buy: Upside by>15, Accumulate: Upside by +5 to 15, Hold: Upside/Downside by -5 to +5, Reduce: Downside by 5 to 15, Sell: Downside by>15

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nse code tcs bse code

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price performance

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india operations

investment rationale