Solid parentage, strong visibility: Under the Tata Consultancy Services (TCS) parentage, CMC has
transformed itself from a low-margin information technology (IT) equipment provider to a well-diversified
IT services and solutions provider and created a niche for itself in the field of large system
engineering and integration projects. CMC initiated its “Joint-Go-To-Market” approach with TCS in
2005, which is paying up handsomely now.
In the last five years, the contribution of the international revenues has tripled from 20% to around
60% of the total revenues in FY2012, whereas the share of the services’ revenues has gone up to almost
90% of the total revenues as compared with 53% in FY2005. The share of revenues achieved through
synergies with TCS has crossed 51% in FY2012 from 43% in FY2007.
CMC has gained a strong foothold in the domestic IT arena by winning large turnkey deals, some on its
own and the others in partnership with TCS. Another favourable factor driving its strong growth and
helping it tap large government projects is its previous status as a public sector undertaking (PSU),
which has given it an edge over the other players. The company counts some of the marquee names in
the domestic market, like RBI, IOC, BPCL, ONGC, coupled with the Indian Railways, other PSUs and
defence sectors.
CMC has set the stage for the next level of growth and is likely to witness a much stronger growth in
the coming years. We expect its earnings to grow at a CAGR of 43% over FY2012-14. At the current
market price (CMP) of Rs1,108, the stock is trading at 13.4x FY2013E and 10.7x FY2014E earnings
respectively. We value the stock at 15x target multiple based on the FY2014 earnings estimate, in line
with its two-year average trading multiple. We have Buy on CMC with a buy rating and a one-year price
target of Rs1,551.
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