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Tata Consultancy
Strength to strength
„Stellar quarter; Promising outlook; Reiterate Buy
Post yet another stellar quarter with 7.4% sequential, 34.5% yoy volume growth,
we retain estimates and reiterate TCS as one of our top picks. Our confidence is
boosted by 1) TCS’s all round growth 2) Increasing share in large transformational
deals 3) Operational excellence. We forecast ~20% 2yr EPS CAGR and believe
this should drive stock return.
Robust, all round volume growth
Q1 saw all-round volume growth led by newer services like infrastructure
management services, verticals like retail and emerging geographies like India /
Middle-east. We believe this has been facilitated by co’s entrepreneurial ability to
spot and invest in growth opportunities early such as in Latin America, India,
infrastructure management services and platform BPO. Interestingly, verticals
other than banking have generated ~60-70% of incremental revs over past 8qtrs.
Gaining share in large and transformational deals
We are enthused by company’s commentary that there is a pick-up in
transformational deals like replacement of core banking systems, building ecommerce platforms and re-engineering supply chains. Importantly, TCS is
gaining share in such deals and closed 10 large deals in the qtr (vs.7 in prev qtr).
Tight operations should help hold margins in narrow band
Higher utilization, productivity and offshore shift helped company restrict gross
margin decline to 150bps, despite the above industry wage hike. Management is
also hopeful of seeing pricing increases in the latter half of the year given
increased complexity of deals. Attrition continues to be at industry low levels.
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