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TCS (TCS)
Technology
Key takeaways from post-3QFY12 fund manager meet. We hosted TCS’ post-
3QFY12 fund manager meet. Management categorically stated that its 3QFY12
earnings call commentary on delays in some discretionary project starts should not be
construed as an indicator of a structural slowdown or a weak FY2013E. Among other
takeaways – (1) no slowdown indicators in the BFSI vertical, (2) situation today is
markedly different from post-Lehman scenario at end-CY2008 and not too different
from end-CY2009 and end-CY2010 barring some increased due diligence on
discretionary projects, and (3) offshoring acceptance in EU has increased substantially.
Management commentary reassuring on demand environment
Key highlights from TCS’ post-3QFY12 fund manager meet
Demand environment healthy. TCS management indicated that 3QFY12 earnings call
commentary on budgets, select discretionary project delays, and 4QFY12 volume growth
expectation moderation should not be construed as an indicator of weakness in demand
environment that continues to be healthy. It also stated that its base plan for FY2013E is an
‘aggressive growth’ plan, without quantifying what ‘aggressive’ implies.
4QFY12E would be a growth quarter. The company has seen select delays in discretionary
project starts that impacted 3QFY12 volume growth and may impact 4QFY12E as well.
However, the company has seen no project cancellations or ramp-downs and remains confident
of improvement in growth rates beyond 4QFY12E. That said, TCS indicated that 4QFY12E
would be a growth quarter.
No slowdown in BFSI vertical. Responding to specific questions on BFSI vertical outlook,
management indicated that it has not seen any slowdown in any of the sub-segments within
this vertical. That several of its top accounts are from the BFSI vertical may mean that BFSI
grows slower than the corporate average, but the company has seen no negative data points to
suggest that this would necessarily be the case.
Situation not meaningfully different from end-CY2009 and end-CY2010. Barring
increased due diligence on discretionary projects, TCS sees no meaningful change in demand
environment today as compared to the same time the past two years. The company also
cautioned against drawing parallels to the post-Lehman demand scenario stating that the
situation is markedly different. Clients had absolutely no clarity on the shape of things to come
then but are much more aware of the macro realities today.
TCS indicated that it continues to remain averse to capital-intensive asset-takeover deals.
The company sees tremendous mining potential within its existing set of accounts and
continues to see this as the key driver of growth in the medium term.
TCS remains committed to platform investments citing them as a key tenet of their
growth strategy.
TCS has seen substantial improvement in the clients’ attitude towards offshoring in
Europe in recent years. The company is getting invited to increasing number of RFPs in
this geography and expects the traction to continue.
TCS attributed the yoy decline in OCF and FCF in 9MFY12 versus 9MFY11 to increase in
tax payments (as STPI benefits have phased out) and increased working capital
requirements. The company maintained that it is comfortable with the quality of its cash
flow generation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TCS (TCS)
Technology
Key takeaways from post-3QFY12 fund manager meet. We hosted TCS’ post-
3QFY12 fund manager meet. Management categorically stated that its 3QFY12
earnings call commentary on delays in some discretionary project starts should not be
construed as an indicator of a structural slowdown or a weak FY2013E. Among other
takeaways – (1) no slowdown indicators in the BFSI vertical, (2) situation today is
markedly different from post-Lehman scenario at end-CY2008 and not too different
from end-CY2009 and end-CY2010 barring some increased due diligence on
discretionary projects, and (3) offshoring acceptance in EU has increased substantially.
Management commentary reassuring on demand environment
Key highlights from TCS’ post-3QFY12 fund manager meet
Demand environment healthy. TCS management indicated that 3QFY12 earnings call
commentary on budgets, select discretionary project delays, and 4QFY12 volume growth
expectation moderation should not be construed as an indicator of weakness in demand
environment that continues to be healthy. It also stated that its base plan for FY2013E is an
‘aggressive growth’ plan, without quantifying what ‘aggressive’ implies.
4QFY12E would be a growth quarter. The company has seen select delays in discretionary
project starts that impacted 3QFY12 volume growth and may impact 4QFY12E as well.
However, the company has seen no project cancellations or ramp-downs and remains confident
of improvement in growth rates beyond 4QFY12E. That said, TCS indicated that 4QFY12E
would be a growth quarter.
No slowdown in BFSI vertical. Responding to specific questions on BFSI vertical outlook,
management indicated that it has not seen any slowdown in any of the sub-segments within
this vertical. That several of its top accounts are from the BFSI vertical may mean that BFSI
grows slower than the corporate average, but the company has seen no negative data points to
suggest that this would necessarily be the case.
Situation not meaningfully different from end-CY2009 and end-CY2010. Barring
increased due diligence on discretionary projects, TCS sees no meaningful change in demand
environment today as compared to the same time the past two years. The company also
cautioned against drawing parallels to the post-Lehman demand scenario stating that the
situation is markedly different. Clients had absolutely no clarity on the shape of things to come
then but are much more aware of the macro realities today.
TCS indicated that it continues to remain averse to capital-intensive asset-takeover deals.
The company sees tremendous mining potential within its existing set of accounts and
continues to see this as the key driver of growth in the medium term.
TCS remains committed to platform investments citing them as a key tenet of their
growth strategy.
TCS has seen substantial improvement in the clients’ attitude towards offshoring in
Europe in recent years. The company is getting invited to increasing number of RFPs in
this geography and expects the traction to continue.
TCS attributed the yoy decline in OCF and FCF in 9MFY12 versus 9MFY11 to increase in
tax payments (as STPI benefits have phased out) and increased working capital
requirements. The company maintained that it is comfortable with the quality of its cash
flow generation.
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