Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TCS reports US$2.2bn deal win; second largest for the company
TCS has won a US$2.2bn 15 year deal (US$146mn per annum) from
Friends Life UK. Under this deal, TCS would migrate existing Life and
Pension policies of Friend’s Life UK to its Diligenta platform. Diligenta
would see an addition of ~3.2mn policies, taking the total to ~8mn live
policies. This is a landmark deal in terms of size, and indicates traction
for TCS’ Diligenta Platform (which TCS acquired in 2005). Revenues
from the deal should start accruing from Mar-2012 onwards and are
expected to be largely evenly distributed over the term of the contract.
Profit margins likely to be very low, at least initially
We believe this deal would contribute very little to TCS’s overall PAT
level over the next 2-3 years, even though it would add ~1.5% in
incremental revenues to TCS in FY13F. The reasons for likely low
profitability are:
About 1,900 employees, who we would expect to be largely UK based,
would be transferred to TCS from Friends Life. The salary cost alone
of these employees would be of the order of US$90-100mn per year,
assuming even median BPO salary costs in the UK.
TCS would have to support duplicate platforms (Friends Life and
Diligenta) until the migration is completed – which management
expects to take 2-3 years. This would require additional cost to be
incurred, in our view.
Diligenta platform business runs at ~ 3.5% PAT margin
TCS’ current business from Diligenta and Diligenta 2 (acquired from
Unisys) would have revenue of ~US$200mn on an annualized basis and
a PAT of ~US$7mn (which translates to PAT margin of 3.5% vs
company PAT margins of 23% in FY11F) on our estimates. These low
levels of profit margin for existing business combined with the cost
structure of the Friends Life business suggest to us that the Diligenta
platform would continue to be margin dilutive, in our view, for at least the
next 2-3 years. Although sentiment to the deal is likely positive, we see a
neutral impact on the stock. Maintain Neutral with TP of INR1100.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TCS reports US$2.2bn deal win; second largest for the company
TCS has won a US$2.2bn 15 year deal (US$146mn per annum) from
Friends Life UK. Under this deal, TCS would migrate existing Life and
Pension policies of Friend’s Life UK to its Diligenta platform. Diligenta
would see an addition of ~3.2mn policies, taking the total to ~8mn live
policies. This is a landmark deal in terms of size, and indicates traction
for TCS’ Diligenta Platform (which TCS acquired in 2005). Revenues
from the deal should start accruing from Mar-2012 onwards and are
expected to be largely evenly distributed over the term of the contract.
Profit margins likely to be very low, at least initially
We believe this deal would contribute very little to TCS’s overall PAT
level over the next 2-3 years, even though it would add ~1.5% in
incremental revenues to TCS in FY13F. The reasons for likely low
profitability are:
About 1,900 employees, who we would expect to be largely UK based,
would be transferred to TCS from Friends Life. The salary cost alone
of these employees would be of the order of US$90-100mn per year,
assuming even median BPO salary costs in the UK.
TCS would have to support duplicate platforms (Friends Life and
Diligenta) until the migration is completed – which management
expects to take 2-3 years. This would require additional cost to be
incurred, in our view.
Diligenta platform business runs at ~ 3.5% PAT margin
TCS’ current business from Diligenta and Diligenta 2 (acquired from
Unisys) would have revenue of ~US$200mn on an annualized basis and
a PAT of ~US$7mn (which translates to PAT margin of 3.5% vs
company PAT margins of 23% in FY11F) on our estimates. These low
levels of profit margin for existing business combined with the cost
structure of the Friends Life business suggest to us that the Diligenta
platform would continue to be margin dilutive, in our view, for at least the
next 2-3 years. Although sentiment to the deal is likely positive, we see a
neutral impact on the stock. Maintain Neutral with TP of INR1100.
No comments:
Post a Comment