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4QFY11 results
TCS’ investment thesis rests on sustaining its margins through FY12 and
Mar-11 performance should address investor concerns on this front.
Ebitda margins were up 7bpsQQ despite falling utilisation and an adverse
move on bad debt write-back. A 4.7%QQ growth in $-revenues met street
expectations and should allay fears of an industry-wide demand flux
which the Infosys report had created. We see the TCS result and
management commentary increasing investor confidence on
sustainability of Indian-tech order books through 2011. Stability in top
management, solid revenue growth and improving ability to manage
margins makes TCS our top pick in the Indian IT space. OPF stays.
Hiring trends suggest a solid FY12 revenue trajectory
TCS’ 4Q $-revenue growth of 4.7%QQ (5.1%QQ in international business)
came in-line with street expectations but a tad below our estimate of 5%QQ.
The most important barometer for FY12 growth remains the hiring pattern
and signs here are encouraging. Gross hiring of 19,324 people (8,569 lateral
hires) in the quarter (after hiring 39,512 people in the previous two quarters)
and FY12 hiring guidance of 60,000 indicates that TCS is preparing for a big
year ahead in FY12. Total hiring of 69,685 people for FY11 was much higher
than TCS’ start of the year guidance of 50,000 and we expect an encore in
FY12 as well. TCS also indicated that qualified deal pipeline is much higher
than at the beginning of FY11. We expect FY12 revenue growth to be in-line
with FY11 and estimate a 28.8% $-revenue growth (FY11:29.1%).
Mar-11 margin performance should address street concerns
Investors have been concerned about TCS’ ability to sustain current margin
levels in FY12 with its high utilisation, benefits from bad debt write-back in
FY11 and wage inflation being the key sources of concern. TCS’ Mar-11
margin performance should alleviate those concerns. TCS managed to
maintain margins flattish QQ despite a 200bpsQQ drop in utilisations and a
much lower write-back (Rs63m c.f. Rs331m last quarter). In fact, the lower
utilisation now gives TCS a solid margin buffer for the forthcoming quarters.
Improvement in employee pyramid (just 43% employees below 3 years
experience) and pricing uptick should provide additional margin leverage.
Remains the top pick in the Indian IT space
The street has upgraded TCS’ earnings in 6 out of the last 7 quarters and that
trend will likely sustain post the current quarter report. TCS continues to
show urgency in reducing operational flab and is steadily closing the margin
gap with Infosys, while inching ahead on revenue growth. Through FY12, we
expect TCS to consolidate the operational gains made in FY10/FY11 driving
stable margin performance (street expecting a decline), with industry-leading
revenue growth. TCS remains our top pick in the Indian IT Services space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4QFY11 results
TCS’ investment thesis rests on sustaining its margins through FY12 and
Mar-11 performance should address investor concerns on this front.
Ebitda margins were up 7bpsQQ despite falling utilisation and an adverse
move on bad debt write-back. A 4.7%QQ growth in $-revenues met street
expectations and should allay fears of an industry-wide demand flux
which the Infosys report had created. We see the TCS result and
management commentary increasing investor confidence on
sustainability of Indian-tech order books through 2011. Stability in top
management, solid revenue growth and improving ability to manage
margins makes TCS our top pick in the Indian IT space. OPF stays.
Hiring trends suggest a solid FY12 revenue trajectory
TCS’ 4Q $-revenue growth of 4.7%QQ (5.1%QQ in international business)
came in-line with street expectations but a tad below our estimate of 5%QQ.
The most important barometer for FY12 growth remains the hiring pattern
and signs here are encouraging. Gross hiring of 19,324 people (8,569 lateral
hires) in the quarter (after hiring 39,512 people in the previous two quarters)
and FY12 hiring guidance of 60,000 indicates that TCS is preparing for a big
year ahead in FY12. Total hiring of 69,685 people for FY11 was much higher
than TCS’ start of the year guidance of 50,000 and we expect an encore in
FY12 as well. TCS also indicated that qualified deal pipeline is much higher
than at the beginning of FY11. We expect FY12 revenue growth to be in-line
with FY11 and estimate a 28.8% $-revenue growth (FY11:29.1%).
Mar-11 margin performance should address street concerns
Investors have been concerned about TCS’ ability to sustain current margin
levels in FY12 with its high utilisation, benefits from bad debt write-back in
FY11 and wage inflation being the key sources of concern. TCS’ Mar-11
margin performance should alleviate those concerns. TCS managed to
maintain margins flattish QQ despite a 200bpsQQ drop in utilisations and a
much lower write-back (Rs63m c.f. Rs331m last quarter). In fact, the lower
utilisation now gives TCS a solid margin buffer for the forthcoming quarters.
Improvement in employee pyramid (just 43% employees below 3 years
experience) and pricing uptick should provide additional margin leverage.
Remains the top pick in the Indian IT space
The street has upgraded TCS’ earnings in 6 out of the last 7 quarters and that
trend will likely sustain post the current quarter report. TCS continues to
show urgency in reducing operational flab and is steadily closing the margin
gap with Infosys, while inching ahead on revenue growth. Through FY12, we
expect TCS to consolidate the operational gains made in FY10/FY11 driving
stable margin performance (street expecting a decline), with industry-leading
revenue growth. TCS remains our top pick in the Indian IT Services space.
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