TCS (TCS.BO; –Takeaways from Citi India Investor Conference – Day 1

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TCS (TCS.BO; Rs1,177.35; 2L)
 Takeaways from Mumbai – TCS presented at our India Investor Conference in
Mumbai. Below are the key takeaways.
 What’s new - (a) Continued bullishness on demand across verticals - telecom a
little slow; (b) margin confidence high - management expects ~27% operating
margin; (c) flat pricing factored in - COLA (cost of living adjustment) increases
happening in some cases but not a trend yet; (d) entry-level wages likely to go up
(~5-10%, as per management’s rough estimates) in FY13.
 Demand update - (a) BFSI doing well with vendor consolidation and
discretionary spends in areas like improving customer experience, regulatory
spend, etc; (b) retail continues to do well; (c) telecom is the only sluggish sector
at this point. Management suggested that, while demand is strong, investors
should keep the high base in mind.
 Update on pricing - (a) Prices still 5-6% below the last peak; (b) there are three
aspects to pricing - improving delivery/fixed price productivity, mix and
renegotiations -some cost-of-living adjustment-related price increases (2-3%
onsite and 3-5% offshore) happening in some clients but this is not a trend yet.
 Margin levers exist - (a) Employee pyramid - 37k campus offers made; (b)
nonlinearity-related initiatives; (c) improvement in initiatives like Diligenta; and (d)
SG&A has some scope for improvement. Pricing improvement should also help,
although this is not factored in yet.