TCS' Robust Results Validate Our Thesis On Double-Digit Q-Q Growth: Cowen

Visit http://indiaer.blogspot.com/ for complete details 􀂄 􀂄


Computer Services & IT Consulting 
Industry Outlook  
  
TCS' Robust Results Validate Our Thesis On 
Double-Digit Q-Q Growth (CTSH) 


Conclusion: Similar to INFY, TCS generated record high double-digit Q-Q
growth, while demonstrating margin resilience, reflecting a noticeable uptick in
discretionary IT spending and benefiting from expanding offshore penetration
within overall IT budgets. Management highlighted a very healthy pipeline with
the possibility of rate increases during the next 6-12 months. Outperform rated
Accenture (ACN $45.55) and Cognizant Technology (CTSH $66.68) are our highconviction
large cap names.
■  Earnings analysis. Revenues grew 13% Q-Q and 24.9% YOY. GM (45.36%)
expanded from the previous quarter’s 45.0% while EBIT margin (28.0%) also
expanded from the previous quarter’s 27.14% reflecting favorable currency
movements and productivity improvements, partially offset by lower
utilization rates and the impact of recent comp increases.
■  Revenues metrics. By region: N.A. (53.7% of sales) posted 9.06% Q-Q
increase, The UK (15.3%) @ 13.17%, Continental Europe (9.1%) @ 14.2% By
vertical: BFSI (44% of sales) posted 10% Q-Q, Telecom (12.8%) @ 12.6%, Retail
and Distribution (10.9%) @ 10.7% and Manufacturing (7.4%) @ 11.8%, Life
Sciences And HC (5.1%) @ 9.5%. By services: ADM (46.8% of sales) posted 9.1%
Q-Q growth, Enterprise Solutions (10.3%) @ 17.4%, Infrastructure Services
(9.4%) @ 20.7%. By client contributions: Top 1 (8% of sales) posted 10.3% Q-Q
growth, top 5 (22.1%) @ 12.2% and top 10 (30.1%) @ 10.2%.
■  Operating/financail metrics. Offshore/onsite/GDC split was 51.1% to
42.7% to 6.2%. This compares with the prior quarter’s 51.2% to 43.6% and
5.2%, respectively. Utilization rates (w/trainees) declined from the prior
quarter’s 74.8% to 73.6%; utilization rates (ex/trainees) declined from the
prior quarter’s 82.6% to 79.5%, respectively. Headcount addition (net) was
320 compared the prior quarter’s 3271. Attrition rates declined from the
prior quarter’s 13.1% to 11.4%.