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Tata Consultancy
Margin confidence, key highlight
4Q in line, Encouraging commentary on outlook & margins
TCS 4Q profit was in line with consensus but 6% ahead of our estimate led by a
100bps EBIT margin beat. 4Q volumes were a tad light growing at sub 3%
sequentially. However, management attributed this to seasonal delays in project
hand-outs at the start of a calendar year. The management sounded convincing
on a strong demand environment and ability to hold margins within a narrow band.
Hiring targets lend confidence. We raise FY12-13 EPSe by 2-3% on increased
margin estimate and raise our price target to Rs1,450. Maintain Buy
Margin confidence stands out despite significant wage hike
Margin focus and ability to likely manage margins within a narrow band was the
key takeaway in our view. TCS has decided to reward employees with an above
avg wage hike of 12-14% offshore, which should be largely offset by a) Scale
benefits in SG&A, employee pyramid & ability to maintain higher utilization b)
improving rev mix e.g. enterprise solutions growing c) likelihood of price increase.
4Q: Volumes a tad light, good margin management
4Q rev (INR terms) grew 5% qoq, 31% yoy, in line with our estimate. EBIT
margins flat qoq, in line with consensus but 100bps ahead of our estimate. PAT
grew 3% qoq, 24% yoy, 6% ahead of our estimate. 4Q softness at 2.9% qoq
attributed to India geo and seasonal delays in international revs at start of
calendar year. EBIT margins held flat qoq at its all time high of 28%, with pricing,
currency and ~28bps benefit from bad debt provision, offsetting hit from hiring led
lower utilization & rise in onsite mix.
Commentary on strong revenue outlook convincing
Commentary on strong revenue outlook convincing based on a) nearly 20,000
gross hires this quarter coupled with a FY12 hiring target of 60,000 implying 22-
24% volume growth, in our view b) 20 large deals in the pipeline of ‘material size’.
4Q in line, Encouraging commentary
on outlook & margins
4Q in line
TCS 4Q profit was in line with consensus but 6% ahead of our estimate led by a
100bps EBIT margin beat. 4Q volumes were a tad light growing at sub 3%
sequentially. However, management attributed this to seasonal delays in project
hand-outs at the start of a calendar year and certain project completions in India.
Optimistic on rev outlook and margins
The management sounded convincing on a strong demand environment and
ability to hold margins within a narrow band. Hiring target of 60k gross additions
for FY12 over and above the 20k gross offers in 4Q lends confidence to our FY12
volume growth estimate of ~23-24%. Deal closures and pipeline additions remain
strong and well spread out for the company.
Estimates and valuation, Maintain Buy, PO Rs1450
We raise FY12-13 EPSe by 2-3% on increased margin estimate and raise our
price target to Rs1,450. Maintain Buy. Our Price Objective of Rs1,450 is based on
a target FY12 EV/EBITDA-to-2-year EBITDA growth of 0.90x, similar to Infosys.
This implies a target FY13e PE of 22x, in line with the current 1-year forward
(FY12e) PE.
While the stock is at a 10% premium to Infy, we expect this premium to sustain till
management succession plans for Infosys (to be announced on April 30) are
clear and investors regain confidence on volume pick-up at Infosys.
Margin confidence stands out despite
significant wage hike
Margin focus and ability to likely manage margins within a narrow band for FY12
was the key takeaway from results commentary, in our view. TCS exited FY11
with EBIT margins at a historical high of 27.8% and a gap of less than 200bps to
Infy.
Impact from wage hikes should be largely offset by a) Scale benefits in SG&A,
employee pyramid & ability to maintain higher utilization b) improving rev mix
e.g. enterprise solutions growing c) likelihood of price increase.
4Q: Volumes a tad light, good margin mgmt
4Q rev (INR terms) grew 5% qoq, 31% yoy, in line with our estimate. 4Q
softness at 2.9% qoq attributed to India geo and seasonal delays in
international revs at start of calendar year.
EBIT margins flat qoq, in line with consensus but 100bps ahead of our
estimate while PAT grew 3% qoq, 24% yoy, 6% ahead of our estimate.
DSO days (including unbilled revenues) stayed flattish at 84 days vs 83 days
in the previous quarter.
Total dividend payout of Rs14 declared for FY11, in comparison with Rs20
(including Rs 10 special dividend) in FY10.
Price objective basis & risk
Tata Consultancy (TACSF)
Our Price Objective of Rs1,450 is based on a target FY12 EV/EBITDA-to-2-year
EBITDA growth of 0.90x, similar to 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.
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Consultancy
Margin confidence, key highlight
4Q in line, Encouraging commentary on outlook & margins
TCS 4Q profit was in line with consensus but 6% ahead of our estimate led by a
100bps EBIT margin beat. 4Q volumes were a tad light growing at sub 3%
sequentially. However, management attributed this to seasonal delays in project
hand-outs at the start of a calendar year. The management sounded convincing
on a strong demand environment and ability to hold margins within a narrow band.
Hiring targets lend confidence. We raise FY12-13 EPSe by 2-3% on increased
margin estimate and raise our price target to Rs1,450. Maintain Buy
Margin confidence stands out despite significant wage hike
Margin focus and ability to likely manage margins within a narrow band was the
key takeaway in our view. TCS has decided to reward employees with an above
avg wage hike of 12-14% offshore, which should be largely offset by a) Scale
benefits in SG&A, employee pyramid & ability to maintain higher utilization b)
improving rev mix e.g. enterprise solutions growing c) likelihood of price increase.
4Q: Volumes a tad light, good margin management
4Q rev (INR terms) grew 5% qoq, 31% yoy, in line with our estimate. EBIT
margins flat qoq, in line with consensus but 100bps ahead of our estimate. PAT
grew 3% qoq, 24% yoy, 6% ahead of our estimate. 4Q softness at 2.9% qoq
attributed to India geo and seasonal delays in international revs at start of
calendar year. EBIT margins held flat qoq at its all time high of 28%, with pricing,
currency and ~28bps benefit from bad debt provision, offsetting hit from hiring led
lower utilization & rise in onsite mix.
Commentary on strong revenue outlook convincing
Commentary on strong revenue outlook convincing based on a) nearly 20,000
gross hires this quarter coupled with a FY12 hiring target of 60,000 implying 22-
24% volume growth, in our view b) 20 large deals in the pipeline of ‘material size’.
4Q in line, Encouraging commentary
on outlook & margins
4Q in line
TCS 4Q profit was in line with consensus but 6% ahead of our estimate led by a
100bps EBIT margin beat. 4Q volumes were a tad light growing at sub 3%
sequentially. However, management attributed this to seasonal delays in project
hand-outs at the start of a calendar year and certain project completions in India.
Optimistic on rev outlook and margins
The management sounded convincing on a strong demand environment and
ability to hold margins within a narrow band. Hiring target of 60k gross additions
for FY12 over and above the 20k gross offers in 4Q lends confidence to our FY12
volume growth estimate of ~23-24%. Deal closures and pipeline additions remain
strong and well spread out for the company.
Estimates and valuation, Maintain Buy, PO Rs1450
We raise FY12-13 EPSe by 2-3% on increased margin estimate and raise our
price target to Rs1,450. Maintain Buy. Our Price Objective of Rs1,450 is based on
a target FY12 EV/EBITDA-to-2-year EBITDA growth of 0.90x, similar to Infosys.
This implies a target FY13e PE of 22x, in line with the current 1-year forward
(FY12e) PE.
While the stock is at a 10% premium to Infy, we expect this premium to sustain till
management succession plans for Infosys (to be announced on April 30) are
clear and investors regain confidence on volume pick-up at Infosys.
Margin confidence stands out despite
significant wage hike
Margin focus and ability to likely manage margins within a narrow band for FY12
was the key takeaway from results commentary, in our view. TCS exited FY11
with EBIT margins at a historical high of 27.8% and a gap of less than 200bps to
Infy.
Impact from wage hikes should be largely offset by a) Scale benefits in SG&A,
employee pyramid & ability to maintain higher utilization b) improving rev mix
e.g. enterprise solutions growing c) likelihood of price increase.
4Q: Volumes a tad light, good margin mgmt
4Q rev (INR terms) grew 5% qoq, 31% yoy, in line with our estimate. 4Q
softness at 2.9% qoq attributed to India geo and seasonal delays in
international revs at start of calendar year.
EBIT margins flat qoq, in line with consensus but 100bps ahead of our
estimate while PAT grew 3% qoq, 24% yoy, 6% ahead of our estimate.
DSO days (including unbilled revenues) stayed flattish at 84 days vs 83 days
in the previous quarter.
Total dividend payout of Rs14 declared for FY11, in comparison with Rs20
(including Rs 10 special dividend) in FY10.
Price objective basis & risk
Tata Consultancy (TACSF)
Our Price Objective of Rs1,450 is based on a target FY12 EV/EBITDA-to-2-year
EBITDA growth of 0.90x, similar to 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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