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Tata Consultancy Services
Overweight
TCS.BO, TCS IN
Rounding out a commanding FY11 with a good exit;
all signs pointing to an equally robust FY12; stay OW
• TCS rounded out a commanding FY11 with a strong 4QFY11 quarter:
Besides its now recognized consistency, the highlight of the quarter was the
ability of the company to sustain margins despite robust hiring (or higher bench
costs). International revenues grew 5.1% Q/Q (USD), underpinning that TCS
continues to admirably manage the balance between revenue growth and
margins and does not see a conflict between the two (growth is the biggest lever
for margins). Growth was all around and industry-wide with the exception of
Telecom (an industry-specific issue). We reiterate our long-standing OW on
TCS and continue to mark it out as among our top picks in the sector.
• Breaking away even further from its closest peer (Infosys) on growth and
perhaps margins as well: It might seem irrelevant to point out now but TCS’s
financial performance now stands in a league of its own with perhaps only
Cognizant giving it company. Its margin gap between Infosys stands at an alltime
low of 100 bps. In fact, as per our estimates, TCS’ margins are higher than
Infosys, adjusting for its India-exposure (8.8% of revenues), which comes at
less than half the margins of its international business. In several ways, we
believe TCS has deservedly emerged as the valuation benchmark in the
sector.
• Offshore wage hikes of 12-14% testify to the company’s confidence in its
FY12 prospects while raising the stakes for peers: TCS has proposed to give
good salary hikes (offshore) despite moderating attrition. We note that Infosys
has announced a 10-12% offshore wage hike, 200 bps points lower than TCS’
proposed wage hike. We believe this points to TCS’ desire to retain its
workforce as it prepares for a robust FY12. Intentionally or otherwise, this
raises the stakes for Infosys and other peers in the fight for talent.
• Admirable execution despite seemingly air-tight utilization: TCS has
operated at utilization (ex-trainees) at between 82% and 84% for the past four
quarters despite its vigorous growth. Peer firms have said that they would like to
moderate high utilizations to better prepare for growth (especially if they have
been operating at peak utilization for more than one quarter). TCS faces no such
constraint, which points to its admirable execution engine that helps it shift
toward a higher new normal on utilization.
• Investment view: Reiterate OW and top pick status; our Mar-12 target
price is raised to Rs1,425 on higher EPS estimates: Our FY12/FY13 EPS
estimates modestly increased by 2.0% each but there is room for these to move
up further if FY12 revenue growth matches that of FY11 (which we do not
factor in)
Stellar consistency leaves no doubt about TCS' leadership
in India IT Services – five factors coming to the fore
4QFY11 gives further credence to our view that TCS has replaced Infosys as
valuation benchmark in India IT services. In a quarter when Infosys struggled to
meet its modest revenue growth guidance, TCS delivered 4.7% US$ revenue growth
and 5.1% growth in international revenues (exports). TCS continues to impress on
the margin front (discussed later). What’s equally impressive, TCS has set certain
other benchmarks in the Indian IT sector and is constantly raising them. We identify
some of them as follows:
1. TCS set a new benchmark on utilization with utilization probably hitting a
higher new normal. The “new normal” on utilization could be higher
than in the past. This is because of three factors:
• A relatively determinate/fixed bench of 10-15 people for new project
starts. New projects for a company of TCS' size grow in line with
revenue growth (about 2500 on an existing project population of
10,000).
• Personnel for internal initiatives may not increase in proportion to
revenues/existing people strength.
• Greater productivity of the workforce and better use of non-effort based
pricing mechanisms especially in infra-management, BPO and
maintenance (For example, note the increasing use by TCS of
transaction-based pricing in BPO (about 40% of TCS' BPO revenues )
and device-based pricing in infra-management (about 80% of TCS’
infra-management revenues derives from device-based pricing). This
might mean that the focus moves to system-based or person-based
productivity and the need to keep and show “higher
billable/available” bench is getting less important.
• Conclusion: This might mean that utilization may be progressively
viewed in absolute terms rather than in percentage terms. As companies
double in size, it does not stand to reason that the bench should double
for planning growth for the reasons cited before. TCS leads the
implementation of the thinking here. This helps TCS manage
margins in FY12E at 27%-28% (EBIT).
2. Exemplary employee retention strategies in place. TCS quarterly
annualized attrition at 16% is much lower than Infosys and others (Note:
quarterly annualized attrition is a standardized measure which computes the
number of employees leaving in the quarter as a percentage of the quarterstarting
employee base; this is comparable across companies).
This is commendable as TCS must have a much higher percentage of its
workforce in its BPO arm than peers and attrition in BPO is more than twice
that of IT-Services (e.g., BPO contributes nearly 12% of TCS’ revenues
versus 6% for Infosys).
3. Offshore wage hike of 12-14% for FY12 while demonstrating TCS’s
confidence in FY12 also potentially raises the stakes for peers. Seen in
the context of a meaningful moderation in attrition, such a quantum is
constructive. Such a move also is indicative of the company’s confidence in
its FY12 growth, and its desire not to allow employee-departures upset that
in any way. In addition, intentionally or otherwise, this may force the hand
of peers who might feel the need to match these hikes in the war for talent.
4. Unmatched full-service positioning in Indian IT Services and versatility
in its business model. In (a) many of the outsourcing-oriented offerings
such as testing, BPO, infra management, system integration and (b) unified,
integrated deal positioning, TCS is supreme. Its unified positioning enables
it to address the comprehensive needs of enterprises of varying hues as
opposed to the sliver, select needs of larger enterprises. This has been the
success of its approach in its recent verticals of strength such as retail, life
sciences/healthcare.
At the same time, it is the only company to have cloud-based IT as a service
offering for the small- and medium business segment. Ability to provide
solutions across clients of varying profiles/sizes (Fortune-100 club down to
small sized clients) attests to the versatility of its business model.
5. Developing growth strategies judiciously drawing on ROIC need not
compromise margins as TCS has admirably shown. It’s not a growth
versus margin debate but a growth versus ROIC debate. This is because
ROIC is not only a function of margins and profitability but also of how
firms manage their balance sheet. If vendors concede concessions to clients
that entail initial investments (data-centres for example), or back-loaded
cash flows or relaxed payment terms, all of these are likely to impact the
balance sheet. There is benefit in doing this to drive earnings growth if
firm’s existing ROIC is already high. Our valuation framework suggests
that valuations are a rather weak function of ROIC if ROIC is already above
a comfortable threshold benchmark (~ 30-35%).
TCS’ ROIC at 40%+ allows it to trade in favor of earnings growth without
affecting margins. In this context, concerns over TCS’ operating and free
cash flow performance in FY11 (declining 6% and 18%, respectively, over
FY10) despite creditable FY11 EBIT Y/Y increase of 31% are unwarranted.
Interestingly, TCS' ROIC at 43%-44% did not increase over the last two
years even as its EBIT margin expanded by 600 bps signifying that TCS
recognizes the benefits of using the balance sheet (through balance sheetrelated
investments) to drive margin improvement and earnings growth (see
Figure 3).
TCS exhibits superior revenue growth in emerging
verticals, while growing steadily in traditional industries
Emerging and relatively smaller verticals such as Energy and Utilities, Hi-Tech,
Retail, Transportation and Life-Sciences drove the 29% Y/Y revenue growth in
FY11. All the emerging verticals exhibited higher than company average growth for
the year. Traditional verticals such as BFSI and Manufacturing also reported
reasonable top-line growth, however, it was lower than the company average.
Telecom revenue growth remained tepid at 10.8% Y/Y, but the under-performance
was due to industry-wide spending pressures.
TCS maintains market share and consolidates its position in traditional verticals,
while gaining superior growth in emerging verticals, which we believe is
commendable. (Strengthening the core while investing for the future) (Refer to our
note “Tech Bubbles & Pebbles: The Indian IT enterprise of 2011 and beyond;
charting the changing future” dated March 17, 2011.)
4QFY11 Highlights
• 4QFY11 revenues came in at $2.24 billion, increasing 4.7% Q/Q and up 5.1% in
INR terms (Rs.101.6 billion). Volume growth of 2.9% drove the revenue
growth, while pricing was modestly positive as well. Notably, top-line growth
from international markets (exports) was 5.1% Q/Q (in USD terms), while
volume grew at 3.3%. India-revenue growth was light partially due to cessation
of an infrastructure management project in 3QFY11. Positive exchange rate
movement contributed 1.3% to revenue growth.
• Pricing continued to improve in 4QFY11 and contributed 0.8% (80 bps) to Q/Q
revenue growth. Management suggested that a robust growth environment may
allow/cause further pricing expansion.
• TCS added 39 clients during the quarter. Net increase in million dollar clients
was 24, compared to 14 last quarter. However, one >$100 mn clients seems to
have shifted to the >$50 mn bracket. TCS won seven large deals during the
quarter including 1 in BFSI space, 2 in manufacturing and 4 in other verticals.
Two of these deals originated in Europe.
• Revenues from BFSI, the largest vertical for TCS, grew at a CQGR of 6.4% in
FY11; however, 4QFY11 growth was slightly muted at 3.3% Q/Q. Two
relatively smaller/emerging verticals — Transportation (+20% Q/Q) and High
Tech (+13% Q/Q) — grew at a double-digit rate. Energy and Utilities,
Manufacturing, Retail and Healthcare exhibited Q/Q US$ revenue growth of
9.4%, 9.0%, 7.5% and 6.7%, respectively. Telecom continues to be a drag
(contracting 3.3% Q/Q) for TCS (like Infosys and HCLT) due to industryspecific
factors.
• Proportion of fixed price contracts increased to 49.5%, declining slightly from
49.7% last quarter, but still at a historically high level.
• TCS reported a net addition of 11,700 employees during the quarter, while gross
addition was 19,324. TCS net headcount increased by 38,185 employees in
FY11 and gross hiring for the year was just short of 70,000. Management guided
to hire 60,000 in FY12E, a rather conservative indication which the company
should easily exceed.
• Quarterly annualized attrition decreases to 16.3% in 4QFY11 from 17.7% in
3QFY11. However, on a LTM basis, attrition remains flat at 14.4%.
• Utilization (excluding trainees) decreased modestly from 83.8% to 82.4%.
Utilization including trainees was down 200 bps from 77.1% to 75.1%.
Management suggested that the company would target to operate at 82%-
84% (ex trainees) utilization rate. The strong utilization is in agreement
with our view that the 'new normal' for utilization should be higher than
the historical average.
• Continental Europe was the fastest-growing geography in 4QFY11 registering
11.4% Q/Q revenue (in US$ terms) growth. Asia Pacific (ex India) was strong as
well, with 9.2% Q/Q growth. Revenues from Americas grew 4.7% Q/Q in the
quarter. UK remained soft with 1.4% growth, while India-revenues were almost
flat.
• In terms of service lines, Enterprise Solutions (+17.7% Q/Q) (in US$ terms)
witnessed strong growth in 4QFY11 primarily driven by increased client
spending on discretionary projects. Enterprise Solutions is one area, where
Infosys is ahead of TCS and strong revenue traction in this high-margin
service line augurs well for the company. However, Infrastructure Services
(-9.9% Q/Q), another growth driver for TCS, experienced softening, partially
due to the cessation of a sizable project in India, but the service line has
delivered double-digit growth in the preceding three quarters.
Application Development and Management (+7.2% Q/Q), BPO (+6.5% Q/Q),
Engineering and Industrial Services (+4.7% Q/Q) and Assurance Services also
reported revenue growth, while Asset Leveraged Solutions (-5.8%), Global
Consulting (-4.4%) and Business Intelligence (-3.2%) businesses registered
revenue decline on a Q/Q basis.
• EBIT margins were broadly flat at 28.0%, while gross profit margins declined
nominally from 45.6% to 45.4%. The continuous strong operating margin
performance reinforces our belief that greater than historical average
margins are due to positive structural shift. Cost optimization along with
strong revenue growth is commendable.
• Tax rate for Q4 increased modestly to 20.8% (18.6% in Q3) partially due to
slightly higher proportion of non-operating income, which is taxable at a higher
rate. Management guided for an increase in tax rate in FY12 due to expiry of
STPI exemptions.
• DSO stood at 80 days, remaining flat at 3QFY11’s level. TCS had invested
funds of Rs.93.6 billion at the end of Q4, an increase of Rs.7.9 billion from Q3.
Valuation and recommendation
Our Mar-12 price target is Rs1,425
Our new Mar-12 PT of Rs.1,425 (up from Rs1425) is based on a one-year forward
P/E multiple of 22.0x, which is at a premium to Infosys’ target multiple of 20.5x.
TCS has exhibited a much better revenue growth profile over the last several quarters
than Infosys; top-line growth has been accompanied by improved profitability, which
we believe justifies the premium.
Risks to our price target
In our view, risks to our PT are further rupee appreciation, especially given that TCS
has a lower hedging position and higher-than-expected wage expenses in variable
payouts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Consultancy Services
Overweight
TCS.BO, TCS IN
Rounding out a commanding FY11 with a good exit;
all signs pointing to an equally robust FY12; stay OW
• TCS rounded out a commanding FY11 with a strong 4QFY11 quarter:
Besides its now recognized consistency, the highlight of the quarter was the
ability of the company to sustain margins despite robust hiring (or higher bench
costs). International revenues grew 5.1% Q/Q (USD), underpinning that TCS
continues to admirably manage the balance between revenue growth and
margins and does not see a conflict between the two (growth is the biggest lever
for margins). Growth was all around and industry-wide with the exception of
Telecom (an industry-specific issue). We reiterate our long-standing OW on
TCS and continue to mark it out as among our top picks in the sector.
• Breaking away even further from its closest peer (Infosys) on growth and
perhaps margins as well: It might seem irrelevant to point out now but TCS’s
financial performance now stands in a league of its own with perhaps only
Cognizant giving it company. Its margin gap between Infosys stands at an alltime
low of 100 bps. In fact, as per our estimates, TCS’ margins are higher than
Infosys, adjusting for its India-exposure (8.8% of revenues), which comes at
less than half the margins of its international business. In several ways, we
believe TCS has deservedly emerged as the valuation benchmark in the
sector.
FY12 prospects while raising the stakes for peers: TCS has proposed to give
good salary hikes (offshore) despite moderating attrition. We note that Infosys
has announced a 10-12% offshore wage hike, 200 bps points lower than TCS’
proposed wage hike. We believe this points to TCS’ desire to retain its
workforce as it prepares for a robust FY12. Intentionally or otherwise, this
raises the stakes for Infosys and other peers in the fight for talent.
• Admirable execution despite seemingly air-tight utilization: TCS has
operated at utilization (ex-trainees) at between 82% and 84% for the past four
quarters despite its vigorous growth. Peer firms have said that they would like to
moderate high utilizations to better prepare for growth (especially if they have
been operating at peak utilization for more than one quarter). TCS faces no such
constraint, which points to its admirable execution engine that helps it shift
toward a higher new normal on utilization.
• Investment view: Reiterate OW and top pick status; our Mar-12 target
price is raised to Rs1,425 on higher EPS estimates: Our FY12/FY13 EPS
estimates modestly increased by 2.0% each but there is room for these to move
up further if FY12 revenue growth matches that of FY11 (which we do not
factor in)
Stellar consistency leaves no doubt about TCS' leadership
in India IT Services – five factors coming to the fore
4QFY11 gives further credence to our view that TCS has replaced Infosys as
valuation benchmark in India IT services. In a quarter when Infosys struggled to
meet its modest revenue growth guidance, TCS delivered 4.7% US$ revenue growth
and 5.1% growth in international revenues (exports). TCS continues to impress on
the margin front (discussed later). What’s equally impressive, TCS has set certain
other benchmarks in the Indian IT sector and is constantly raising them. We identify
some of them as follows:
1. TCS set a new benchmark on utilization with utilization probably hitting a
higher new normal. The “new normal” on utilization could be higher
than in the past. This is because of three factors:
• A relatively determinate/fixed bench of 10-15 people for new project
starts. New projects for a company of TCS' size grow in line with
revenue growth (about 2500 on an existing project population of
10,000).
• Personnel for internal initiatives may not increase in proportion to
revenues/existing people strength.
• Greater productivity of the workforce and better use of non-effort based
pricing mechanisms especially in infra-management, BPO and
maintenance (For example, note the increasing use by TCS of
transaction-based pricing in BPO (about 40% of TCS' BPO revenues )
and device-based pricing in infra-management (about 80% of TCS’
infra-management revenues derives from device-based pricing). This
might mean that the focus moves to system-based or person-based
productivity and the need to keep and show “higher
billable/available” bench is getting less important.
• Conclusion: This might mean that utilization may be progressively
viewed in absolute terms rather than in percentage terms. As companies
double in size, it does not stand to reason that the bench should double
for planning growth for the reasons cited before. TCS leads the
implementation of the thinking here. This helps TCS manage
margins in FY12E at 27%-28% (EBIT).
2. Exemplary employee retention strategies in place. TCS quarterly
annualized attrition at 16% is much lower than Infosys and others (Note:
quarterly annualized attrition is a standardized measure which computes the
number of employees leaving in the quarter as a percentage of the quarterstarting
employee base; this is comparable across companies).
This is commendable as TCS must have a much higher percentage of its
workforce in its BPO arm than peers and attrition in BPO is more than twice
that of IT-Services (e.g., BPO contributes nearly 12% of TCS’ revenues
versus 6% for Infosys).
3. Offshore wage hike of 12-14% for FY12 while demonstrating TCS’s
confidence in FY12 also potentially raises the stakes for peers. Seen in
the context of a meaningful moderation in attrition, such a quantum is
constructive. Such a move also is indicative of the company’s confidence in
its FY12 growth, and its desire not to allow employee-departures upset that
in any way. In addition, intentionally or otherwise, this may force the hand
of peers who might feel the need to match these hikes in the war for talent.
4. Unmatched full-service positioning in Indian IT Services and versatility
in its business model. In (a) many of the outsourcing-oriented offerings
such as testing, BPO, infra management, system integration and (b) unified,
integrated deal positioning, TCS is supreme. Its unified positioning enables
it to address the comprehensive needs of enterprises of varying hues as
opposed to the sliver, select needs of larger enterprises. This has been the
success of its approach in its recent verticals of strength such as retail, life
sciences/healthcare.
At the same time, it is the only company to have cloud-based IT as a service
offering for the small- and medium business segment. Ability to provide
solutions across clients of varying profiles/sizes (Fortune-100 club down to
small sized clients) attests to the versatility of its business model.
5. Developing growth strategies judiciously drawing on ROIC need not
compromise margins as TCS has admirably shown. It’s not a growth
versus margin debate but a growth versus ROIC debate. This is because
ROIC is not only a function of margins and profitability but also of how
firms manage their balance sheet. If vendors concede concessions to clients
that entail initial investments (data-centres for example), or back-loaded
cash flows or relaxed payment terms, all of these are likely to impact the
balance sheet. There is benefit in doing this to drive earnings growth if
firm’s existing ROIC is already high. Our valuation framework suggests
that valuations are a rather weak function of ROIC if ROIC is already above
a comfortable threshold benchmark (~ 30-35%).
TCS’ ROIC at 40%+ allows it to trade in favor of earnings growth without
affecting margins. In this context, concerns over TCS’ operating and free
cash flow performance in FY11 (declining 6% and 18%, respectively, over
FY10) despite creditable FY11 EBIT Y/Y increase of 31% are unwarranted.
Interestingly, TCS' ROIC at 43%-44% did not increase over the last two
years even as its EBIT margin expanded by 600 bps signifying that TCS
recognizes the benefits of using the balance sheet (through balance sheetrelated
investments) to drive margin improvement and earnings growth (see
Figure 3).
TCS exhibits superior revenue growth in emerging
verticals, while growing steadily in traditional industries
Emerging and relatively smaller verticals such as Energy and Utilities, Hi-Tech,
Retail, Transportation and Life-Sciences drove the 29% Y/Y revenue growth in
FY11. All the emerging verticals exhibited higher than company average growth for
the year. Traditional verticals such as BFSI and Manufacturing also reported
reasonable top-line growth, however, it was lower than the company average.
Telecom revenue growth remained tepid at 10.8% Y/Y, but the under-performance
was due to industry-wide spending pressures.
TCS maintains market share and consolidates its position in traditional verticals,
while gaining superior growth in emerging verticals, which we believe is
commendable. (Strengthening the core while investing for the future) (Refer to our
note “Tech Bubbles & Pebbles: The Indian IT enterprise of 2011 and beyond;
charting the changing future” dated March 17, 2011.)
4QFY11 Highlights
• 4QFY11 revenues came in at $2.24 billion, increasing 4.7% Q/Q and up 5.1% in
INR terms (Rs.101.6 billion). Volume growth of 2.9% drove the revenue
growth, while pricing was modestly positive as well. Notably, top-line growth
from international markets (exports) was 5.1% Q/Q (in USD terms), while
volume grew at 3.3%. India-revenue growth was light partially due to cessation
of an infrastructure management project in 3QFY11. Positive exchange rate
movement contributed 1.3% to revenue growth.
• Pricing continued to improve in 4QFY11 and contributed 0.8% (80 bps) to Q/Q
revenue growth. Management suggested that a robust growth environment may
allow/cause further pricing expansion.
• TCS added 39 clients during the quarter. Net increase in million dollar clients
was 24, compared to 14 last quarter. However, one >$100 mn clients seems to
have shifted to the >$50 mn bracket. TCS won seven large deals during the
quarter including 1 in BFSI space, 2 in manufacturing and 4 in other verticals.
Two of these deals originated in Europe.
• Revenues from BFSI, the largest vertical for TCS, grew at a CQGR of 6.4% in
FY11; however, 4QFY11 growth was slightly muted at 3.3% Q/Q. Two
relatively smaller/emerging verticals — Transportation (+20% Q/Q) and High
Tech (+13% Q/Q) — grew at a double-digit rate. Energy and Utilities,
Manufacturing, Retail and Healthcare exhibited Q/Q US$ revenue growth of
9.4%, 9.0%, 7.5% and 6.7%, respectively. Telecom continues to be a drag
(contracting 3.3% Q/Q) for TCS (like Infosys and HCLT) due to industryspecific
factors.
• Proportion of fixed price contracts increased to 49.5%, declining slightly from
49.7% last quarter, but still at a historically high level.
• TCS reported a net addition of 11,700 employees during the quarter, while gross
addition was 19,324. TCS net headcount increased by 38,185 employees in
FY11 and gross hiring for the year was just short of 70,000. Management guided
to hire 60,000 in FY12E, a rather conservative indication which the company
should easily exceed.
• Quarterly annualized attrition decreases to 16.3% in 4QFY11 from 17.7% in
3QFY11. However, on a LTM basis, attrition remains flat at 14.4%.
• Utilization (excluding trainees) decreased modestly from 83.8% to 82.4%.
Utilization including trainees was down 200 bps from 77.1% to 75.1%.
Management suggested that the company would target to operate at 82%-
84% (ex trainees) utilization rate. The strong utilization is in agreement
with our view that the 'new normal' for utilization should be higher than
the historical average.
• Continental Europe was the fastest-growing geography in 4QFY11 registering
11.4% Q/Q revenue (in US$ terms) growth. Asia Pacific (ex India) was strong as
well, with 9.2% Q/Q growth. Revenues from Americas grew 4.7% Q/Q in the
quarter. UK remained soft with 1.4% growth, while India-revenues were almost
flat.
• In terms of service lines, Enterprise Solutions (+17.7% Q/Q) (in US$ terms)
witnessed strong growth in 4QFY11 primarily driven by increased client
spending on discretionary projects. Enterprise Solutions is one area, where
Infosys is ahead of TCS and strong revenue traction in this high-margin
service line augurs well for the company. However, Infrastructure Services
(-9.9% Q/Q), another growth driver for TCS, experienced softening, partially
due to the cessation of a sizable project in India, but the service line has
delivered double-digit growth in the preceding three quarters.
Application Development and Management (+7.2% Q/Q), BPO (+6.5% Q/Q),
Engineering and Industrial Services (+4.7% Q/Q) and Assurance Services also
reported revenue growth, while Asset Leveraged Solutions (-5.8%), Global
Consulting (-4.4%) and Business Intelligence (-3.2%) businesses registered
revenue decline on a Q/Q basis.
• EBIT margins were broadly flat at 28.0%, while gross profit margins declined
nominally from 45.6% to 45.4%. The continuous strong operating margin
performance reinforces our belief that greater than historical average
margins are due to positive structural shift. Cost optimization along with
strong revenue growth is commendable.
• Tax rate for Q4 increased modestly to 20.8% (18.6% in Q3) partially due to
slightly higher proportion of non-operating income, which is taxable at a higher
rate. Management guided for an increase in tax rate in FY12 due to expiry of
STPI exemptions.
• DSO stood at 80 days, remaining flat at 3QFY11’s level. TCS had invested
funds of Rs.93.6 billion at the end of Q4, an increase of Rs.7.9 billion from Q3.
Valuation and recommendation
Our Mar-12 price target is Rs1,425
Our new Mar-12 PT of Rs.1,425 (up from Rs1425) is based on a one-year forward
P/E multiple of 22.0x, which is at a premium to Infosys’ target multiple of 20.5x.
TCS has exhibited a much better revenue growth profile over the last several quarters
than Infosys; top-line growth has been accompanied by improved profitability, which
we believe justifies the premium.
Risks to our price target
In our view, risks to our PT are further rupee appreciation, especially given that TCS
has a lower hedging position and higher-than-expected wage expenses in variable
payouts.
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