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Tata Consultancy
Cloud SMB offering: An exciting inflexion
„Launch of Cloud-based SAAS offering for SMBs a landmark
TCS launches its Cloud SMB offering tomorrow. It is initially aimed at the India market,
which is currently estimated at USD12bn and forecast to grow at over a 40% CAGR over the
next 4 years. Globally, it is a USD1.04trn market. As in our recent theme piece on cloud,
cloud solutions are potentially margin accretive once it acquires scale. It will be marketed
through a network of 80 value-added resellers across 21 cities that will be compensated on
commission basis over a period of time.
Layered cloud-based IT service offering
TCS started investing in Apr08, all of which has been expensed, and has100 pilot
customers. The product offers hardware, connectivity, common office applications, business
applications and core vertical ERP solutions for manufacturing, retail, wellness and
education. It also provides an extranet for clients to connect to its customers and suppliers,
and also enables business analytics. TCS believes there is no comparable product in the
market, given its comprehensive nature.
Attractive value proposition
Key advantages of the product are: a) TCS takes complete accountability for hardware,
network, software & services, b) it is on demand, c) it is opex-based, d) it incorporates
business process knowledge, e.g., procure to pay, order to cash, and e) embeds compliance
processes. Hence, it enhances productivity, growth and saves from risk of obsolescence. As
per the company, it cuts the total cost of ownership by 40%.
2011 likely another strong year; One of our top picks
Overall, we believe demand pick-up is broad-based with discretionary IT spending
increasing and an upward bias to pricing. TCS hopes to maintain a 27% EBIT margin next
year as well, barring any significant currency volatility. One of the key levers going forward is
non-linear initiatives, such as the Cloud-Based SMB offering and investments in solutions/
geographies beginning pay off. We remain confident of our FY11-13e USD-terms rev growth
of ~30% CAGR and Re-terms rev growth of 25%, and EPS growth of 22%. TCS remains
one of our top picks
Price objective basis & risk
Tata Consultancy (TACSF)
Our Price Objective of Rs1,400 is based on a target FY12 EV/EBITDA-to-2-year
EBITDA growth of 0.85x, in line with Infosys. This implies a target FY13e PE of
22x, in line with the current 1-year forward (FY12e) PE. Downside risks to our
estimates stem from macro-led delays in IT spending or a sharp appreciation of
the Rupee.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Consultancy
Cloud SMB offering: An exciting inflexion
„Launch of Cloud-based SAAS offering for SMBs a landmark
TCS launches its Cloud SMB offering tomorrow. It is initially aimed at the India market,
which is currently estimated at USD12bn and forecast to grow at over a 40% CAGR over the
next 4 years. Globally, it is a USD1.04trn market. As in our recent theme piece on cloud,
cloud solutions are potentially margin accretive once it acquires scale. It will be marketed
through a network of 80 value-added resellers across 21 cities that will be compensated on
commission basis over a period of time.
Layered cloud-based IT service offering
TCS started investing in Apr08, all of which has been expensed, and has100 pilot
customers. The product offers hardware, connectivity, common office applications, business
applications and core vertical ERP solutions for manufacturing, retail, wellness and
education. It also provides an extranet for clients to connect to its customers and suppliers,
and also enables business analytics. TCS believes there is no comparable product in the
market, given its comprehensive nature.
Attractive value proposition
Key advantages of the product are: a) TCS takes complete accountability for hardware,
network, software & services, b) it is on demand, c) it is opex-based, d) it incorporates
business process knowledge, e.g., procure to pay, order to cash, and e) embeds compliance
processes. Hence, it enhances productivity, growth and saves from risk of obsolescence. As
per the company, it cuts the total cost of ownership by 40%.
2011 likely another strong year; One of our top picks
Overall, we believe demand pick-up is broad-based with discretionary IT spending
increasing and an upward bias to pricing. TCS hopes to maintain a 27% EBIT margin next
year as well, barring any significant currency volatility. One of the key levers going forward is
non-linear initiatives, such as the Cloud-Based SMB offering and investments in solutions/
geographies beginning pay off. We remain confident of our FY11-13e USD-terms rev growth
of ~30% CAGR and Re-terms rev growth of 25%, and EPS growth of 22%. TCS remains
one of our top picks
Price objective basis & risk
Tata Consultancy (TACSF)
Our Price Objective of Rs1,400 is based on a target FY12 EV/EBITDA-to-2-year
EBITDA growth of 0.85x, in line with Infosys. This implies a target FY13e PE of
22x, in line with the current 1-year forward (FY12e) PE. Downside risks to our
estimates stem from macro-led delays in IT spending or a sharp appreciation of
the Rupee.
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