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Key Takeaways
Demand environment intact, no change in hiring plans
The demand environment has not changed materially after the heated noise about
the economic turmoil in recent weeks. However, mega deals have not been on the
table, which has been the case for some time.
TCS has not changed hiring plans yet, especially since there have not been project
cancellations/deal deferrals/budget cuts till date.
For TCS the pipeline has not contracted yet, and continues to be broad-based. It
remains to be seen whether the pipeline is more of vendor consolidation work or
new projects. TCS maintained its guidance for consistent growth through FY12.
No incremental pressure from pricing or supply side
There has been no pricing pressure, and the management views the conditions as
being pretty much the same as they were five months ago. However, it expressed
caution on price contamination, if peers adopt an aggressive approach. However,
there has been no change given that the fears have lasted for a couple of years.
Attrition has been normal and has not moved significantly in either direction. Contrary
to some articles on a slowdown in IT hiring, TCS sees no declining trend in hiring.
Need for caution over US unemployment
High unemployment in the US is a cause for concern. Given that clients are aware
about the situation, cut-downs in numbers may not drive additional offshore spends
amid the ongoing protectionist rhetoric.
However, the visa issue is more political than economical. This should change going
forward with the company's and the industry's sharper focus on hiring locals.
Target to sustain margins, local hiring at onsite not expected to hurt margins
TCS maintains its target of 27% EBIT margin and expects to steadily work towards
that level, despite headwinds from (1) promotion impact effective from 2QFY12,
and (2) continued investment in people and infrastructure.
TCS does not believe increased local hiring will impact margins, mainly due to a low
base of onsite employees. The salary differential at a junior level between recruits
from India and local hires would be insignificant.
Valuation and view
Our estimates for FY12 and FY13 EPS stand at INR53 and INR64 respectively. TCS
has been on a purple patch but its valuations had built in continued exemplary
outperformance. However, the recent correction provides the necessary margin of
safety, which we believe, makes the risk-reward favorable.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Demand environment intact, no change in hiring plans
The demand environment has not changed materially after the heated noise about
the economic turmoil in recent weeks. However, mega deals have not been on the
table, which has been the case for some time.
TCS has not changed hiring plans yet, especially since there have not been project
cancellations/deal deferrals/budget cuts till date.
For TCS the pipeline has not contracted yet, and continues to be broad-based. It
remains to be seen whether the pipeline is more of vendor consolidation work or
new projects. TCS maintained its guidance for consistent growth through FY12.
No incremental pressure from pricing or supply side
There has been no pricing pressure, and the management views the conditions as
being pretty much the same as they were five months ago. However, it expressed
caution on price contamination, if peers adopt an aggressive approach. However,
there has been no change given that the fears have lasted for a couple of years.
Attrition has been normal and has not moved significantly in either direction. Contrary
to some articles on a slowdown in IT hiring, TCS sees no declining trend in hiring.
Need for caution over US unemployment
High unemployment in the US is a cause for concern. Given that clients are aware
about the situation, cut-downs in numbers may not drive additional offshore spends
amid the ongoing protectionist rhetoric.
However, the visa issue is more political than economical. This should change going
forward with the company's and the industry's sharper focus on hiring locals.
Target to sustain margins, local hiring at onsite not expected to hurt margins
TCS maintains its target of 27% EBIT margin and expects to steadily work towards
that level, despite headwinds from (1) promotion impact effective from 2QFY12,
and (2) continued investment in people and infrastructure.
TCS does not believe increased local hiring will impact margins, mainly due to a low
base of onsite employees. The salary differential at a junior level between recruits
from India and local hires would be insignificant.
Valuation and view
Our estimates for FY12 and FY13 EPS stand at INR53 and INR64 respectively. TCS
has been on a purple patch but its valuations had built in continued exemplary
outperformance. However, the recent correction provides the necessary margin of
safety, which we believe, makes the risk-reward favorable.
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