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Volume, BFSI and Salaries tad disappointing
5.1% QoQ growth of revenue in rupee terms and flat EBITDA
margin was in line with our expectation. Soft volume growth
and slow BFSI could indicate tapering off of one offs in 2011 (in
line with our theory of normalisation of demand) which could
be early signs of worry. We believe TCS would find it difficult to
fill the gap with other verticals if BFSI slows down. Higher than
expected wage increases signifies tighter supply and would
impact margins more than expected. Employee pyramid
related gains will also be limited as the fresher to lateral mix in
hiring is quite similar to the one in FY11. Only a realisation
uptick would come to the rescue as head room on other
margin levers is minimal. We maintain our target price of
Rs855 and reiterate Sell. We believe TCS should trade at a
discount to Infosys as the latter’s ROIC has been, and is likely
to be, significantly better than that of TCS’s. We maintain Sell.
Volume growth slowed down: TCS reported a topline
growth of 5.1% qoq in rupee terms and 4.7% qoq in dollar
terms. The volume growth was muted at 2.9% on a sequential
basis while the realization improved marginally by 70bps.
BFSI Soft; One-off items could be tailing off: The BFSI sector
grew at 3% QoQ in dollar terms. Incremental revenue
contribution from BFSI in Q4FY11 was one of the lowest since
Q1FY10. We believe one off items like M&A related integration
work which led to the increased BFSI spending might be
tailing off now. There is lack of visibility in demand from
regulatory/compliance related work based on commentary
from industry peers.
Hiring target is a positive; wage hike negative. Hiring
target of 60,000 for FY12 implies growth of ~25% which is a
positive. However, higher than expected wage hike of 12-14%
offshore and 2-4% onsite would result in higher than expected
impact on margins. It also signifies tightening of job market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Volume, BFSI and Salaries tad disappointing
5.1% QoQ growth of revenue in rupee terms and flat EBITDA
margin was in line with our expectation. Soft volume growth
and slow BFSI could indicate tapering off of one offs in 2011 (in
line with our theory of normalisation of demand) which could
be early signs of worry. We believe TCS would find it difficult to
fill the gap with other verticals if BFSI slows down. Higher than
expected wage increases signifies tighter supply and would
impact margins more than expected. Employee pyramid
related gains will also be limited as the fresher to lateral mix in
hiring is quite similar to the one in FY11. Only a realisation
uptick would come to the rescue as head room on other
margin levers is minimal. We maintain our target price of
Rs855 and reiterate Sell. We believe TCS should trade at a
discount to Infosys as the latter’s ROIC has been, and is likely
to be, significantly better than that of TCS’s. We maintain Sell.
Volume growth slowed down: TCS reported a topline
growth of 5.1% qoq in rupee terms and 4.7% qoq in dollar
terms. The volume growth was muted at 2.9% on a sequential
basis while the realization improved marginally by 70bps.
BFSI Soft; One-off items could be tailing off: The BFSI sector
grew at 3% QoQ in dollar terms. Incremental revenue
contribution from BFSI in Q4FY11 was one of the lowest since
Q1FY10. We believe one off items like M&A related integration
work which led to the increased BFSI spending might be
tailing off now. There is lack of visibility in demand from
regulatory/compliance related work based on commentary
from industry peers.
Hiring target is a positive; wage hike negative. Hiring
target of 60,000 for FY12 implies growth of ~25% which is a
positive. However, higher than expected wage hike of 12-14%
offshore and 2-4% onsite would result in higher than expected
impact on margins. It also signifies tightening of job market.
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