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UBS Investment Research
TCS -Strong quarter, outpaces Infosys again
�� Dollar revenue up 7% QoQ, backed by 5.7% QoQ volume growth
TCS reported revenue of US$2.14bn, up 7% QoQ, slightly lower than our estimate
of US$2.17bn. This was backed by 5.7% QoQ growth in volumes, lower than our
estimate of 7% QoQ, but significantly above the 3% QoQ growth reported by
Infosys. Rupee revenue at Rs96.6bn was 1.5% below our estimate, but slightly
above consensus. Net profit at Rs23.3bn was 4.5% above our estimate and 6.8%
above consensus.
�� EBITDA margins touches 30.2%, up 20bp to an 8-yr high
EBITDA margins touched an eight-year high of 30.2%, up 20bp (vs. estimate of
40bp decline), largely led by gross margin improvement. TCS management noted
blended pricing increase of 1.2% QoQ, which helped counteract the impact of
adverse currency moves during the quarter.
�� Hiring guidance of 12,000-15,000 points to stronger 4Q than Infosys
TCS has guided for gross employee addition of 12,000-15,000, which roughly
translates into a volume guidance of 3-5% QoQ, assuming a slight drop in
utilisation. This is stronger than the 1-2% QoQ revenue guidance from Infosys for
4Q FY11, in line with our view that TCS would continue to grow revenue faster
than Infosys (since Infosys does not assume pricing increase in guidance).
�� Valuation: maintain Neutral, o/p to Infosys likely to continue
We retain Neutral rating with a DCF based PT. We prefer TCS over Infosys at
current levels as we expect TCS to continue to outperform Infosys.
�� Tata Consultancy Services Ltd.
Tata Consultancy Services (TCS), incorporated in 1968, is the largest Indian IT
services company with revenue of US$6bn in FY09 and more than 143,000
employees. TCS offers services in application development and maintenance,
enterprise solutions, IT infrastructure management, consulting, and business
process outsourcing to its clients. TCS's customers are from the banking,
financial services and insurance, manufacturing, telecom, retail and distribution,
energy and utilities, and life sciences verticals. Its key markets are the US (about
52% of FY09 revenue) and Europe (about 29%).
�� Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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