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US dollar-denominated 4Q11 revenues were in line (+4.7% qoq) and margins rose modestly (we
forecast -50bp qoq). A strong finish to hiring (c70k gross adds), FY12 guidance (60k gross adds)
and 12-14% announced salary hikes back up management's confidence in the demand outlook.
We reiterate Buy.
Confident management stance backed by 4Q11 results and recruitment signals
TCS finished FY11 strongly, with 4.7% qoq growth in 4Q11 and EBITDA margins at 30.3% (a
historical high). TCS is aggressively ramping up hiring to address demand – 4Q11 gross hires of
c19k was ahead of the 12-15k guidance given last quarter. Management plans gross adds of 60k
next year (vs 50k guided at the start of FY11 and actual recruitment of c70k) and plans to give
12-14% offshore salary hikes (10-12% announced by Infosys), attributing the strong demand
outlook. Deal pipeline and sizes continue to improve for TCS. TCS did not see any weakness in
the US (Infosys and HCL Tech saw muted growth in 4Q11) and expects high growth to continue
in FY12. With revenue outperformance continuing despite a high base and margins nearly
catching up (4Q11 EBIT margin of 28% vs 29% for Infosys), we expect the valuation premium for
TCS to be sustained.
4Q11 revenues: Delivered on expected lines, although more realisation driven
TCS’s 4Q11 revenues grew 4.7% qoq to US$2.24bn (5.1% growth in International business),
broadly in line with our estimate. Volume growth was 2.9% qoq (3.3% in International business vs
our 4.3% estimate), but was compensated for by realisation (+0.8% ex currency). We believe this
was driven at least partly by a favourable service mix change – enterprise solutions revenues
rose 17.7% qoq. All verticals barring, Telecom grew qoq.
Margins continue to surprise on the upside despite utilisation drop
EBITDA margins continued their upward trend through 4QFY11, ending at 30.3% (RBS: 29.7%).
This was despite a 200bp drop in utilisation and higher SG&A costs (-45bp impact), as
currency(+58bp impact) and direct cost leverage mitigated the impact. Other income rose 24.3%,
due to higher treasury yields. The tax rate rose 225bp qoq to 20.8%. Consequently, PAT rose
3.1% qoq to Rs24.0bn (RBS: Rs23.7bn). Management was noncommittal on FY12 margins,
although it expects leverage from utilisation, growth and pricing to help mitigate pressure from
salary hikes and currency.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
US dollar-denominated 4Q11 revenues were in line (+4.7% qoq) and margins rose modestly (we
forecast -50bp qoq). A strong finish to hiring (c70k gross adds), FY12 guidance (60k gross adds)
and 12-14% announced salary hikes back up management's confidence in the demand outlook.
We reiterate Buy.
Confident management stance backed by 4Q11 results and recruitment signals
TCS finished FY11 strongly, with 4.7% qoq growth in 4Q11 and EBITDA margins at 30.3% (a
historical high). TCS is aggressively ramping up hiring to address demand – 4Q11 gross hires of
c19k was ahead of the 12-15k guidance given last quarter. Management plans gross adds of 60k
next year (vs 50k guided at the start of FY11 and actual recruitment of c70k) and plans to give
12-14% offshore salary hikes (10-12% announced by Infosys), attributing the strong demand
outlook. Deal pipeline and sizes continue to improve for TCS. TCS did not see any weakness in
the US (Infosys and HCL Tech saw muted growth in 4Q11) and expects high growth to continue
in FY12. With revenue outperformance continuing despite a high base and margins nearly
catching up (4Q11 EBIT margin of 28% vs 29% for Infosys), we expect the valuation premium for
TCS to be sustained.
4Q11 revenues: Delivered on expected lines, although more realisation driven
TCS’s 4Q11 revenues grew 4.7% qoq to US$2.24bn (5.1% growth in International business),
broadly in line with our estimate. Volume growth was 2.9% qoq (3.3% in International business vs
our 4.3% estimate), but was compensated for by realisation (+0.8% ex currency). We believe this
was driven at least partly by a favourable service mix change – enterprise solutions revenues
rose 17.7% qoq. All verticals barring, Telecom grew qoq.
Margins continue to surprise on the upside despite utilisation drop
EBITDA margins continued their upward trend through 4QFY11, ending at 30.3% (RBS: 29.7%).
This was despite a 200bp drop in utilisation and higher SG&A costs (-45bp impact), as
currency(+58bp impact) and direct cost leverage mitigated the impact. Other income rose 24.3%,
due to higher treasury yields. The tax rate rose 225bp qoq to 20.8%. Consequently, PAT rose
3.1% qoq to Rs24.0bn (RBS: Rs23.7bn). Management was noncommittal on FY12 margins,
although it expects leverage from utilisation, growth and pricing to help mitigate pressure from
salary hikes and currency.
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