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Management meeting notes
Presenting at CLSA’s Investor Forum, TCS’ CFO underlined confidence in
near term order book with a weaker currency likely to boost margins as
well. Among the positives, TCS is sticking to its facilities expansion plan
and gross hiring target of 60,000 for FY12. However, pricing trends,
always a lead indicator of demand issues, seem a tad on the softer side,
with TCS mentioning flattish pricing as the best case scenario hereon.
However, like most of its peers, TCS remains non-committal on 2012 IT
spending prospects as yet with clarity on this front likely only by mid-
Dec11 at the earliest. We retain our cautious stance on the sector.
Robust near term demand but non-committal on 2012
TCS is not seeing any signs of demand weakness at this point in time.
Contrary to comments from some of its peers, TCS has not seen any
instances of project delays or cancellations just yet. We expect TCS to
continue its superior growth trajectory in Sep-11 quarter as well. We are
building-in 7.3%QQ growth in $-revenues with ~150bpsQQ improvement in
operating margins. TCS believes it is too early to comment on 2012 IT
budgets of clients. These will be finalised only by end of November to mid-
December. A final take on how the current global crisis will impact IT
spending will emerge only by end of the year or perhaps in Jan 2012.
Pricing remains a challenge
TCS’ commentary on pricing however has substantially moderated c.f. 3-6
months back. While TCS has managed to negotiate pricing upwards with
some clients, it has had minimal impact on company-wide pricing. With
pricing ~8% lower than in 2008, TCS believes that incremental downsides
look unlikely. That said, given the current weak macro environment, flattish
pricing seems to be the best case for now.
Investment plans remain on track
TCS is holding on to its gross hiring plans of 60,000 for FY12. It has also
started visiting engineering campuses for hiring of fresh graduates for FY13
and per the CFO, initial indications are of a YY increase in hiring. With an
unused capacity of just 5,000 seats at Chennai SEZ, TCS is augmenting its
capacity through centres in Pune, Ahmedabad, Indore and Bhubaneswar. TCS
also plans to increase its China headcount to 5,000 from 1,300 currently.
Sector outlook remains challenged for now
Tech stocks have underperformed the Indian benchmark indices over the last
3 months. We believe that the current environment of macro-demand
uncertainty will continue to weigh on any secular out-performance of Indian
techs, currency depreciation notwithstanding. Strong volume uptick needs to
precede stock upsides ahead. While the recent de-rating of tech stocks stems
from global cyclical worries, longer-term PE multiples also remain at risk from
prospects of lower growth rates and a changing business model ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management meeting notes
Presenting at CLSA’s Investor Forum, TCS’ CFO underlined confidence in
near term order book with a weaker currency likely to boost margins as
well. Among the positives, TCS is sticking to its facilities expansion plan
and gross hiring target of 60,000 for FY12. However, pricing trends,
always a lead indicator of demand issues, seem a tad on the softer side,
with TCS mentioning flattish pricing as the best case scenario hereon.
However, like most of its peers, TCS remains non-committal on 2012 IT
spending prospects as yet with clarity on this front likely only by mid-
Dec11 at the earliest. We retain our cautious stance on the sector.
Robust near term demand but non-committal on 2012
TCS is not seeing any signs of demand weakness at this point in time.
Contrary to comments from some of its peers, TCS has not seen any
instances of project delays or cancellations just yet. We expect TCS to
continue its superior growth trajectory in Sep-11 quarter as well. We are
building-in 7.3%QQ growth in $-revenues with ~150bpsQQ improvement in
operating margins. TCS believes it is too early to comment on 2012 IT
budgets of clients. These will be finalised only by end of November to mid-
December. A final take on how the current global crisis will impact IT
spending will emerge only by end of the year or perhaps in Jan 2012.
Pricing remains a challenge
TCS’ commentary on pricing however has substantially moderated c.f. 3-6
months back. While TCS has managed to negotiate pricing upwards with
some clients, it has had minimal impact on company-wide pricing. With
pricing ~8% lower than in 2008, TCS believes that incremental downsides
look unlikely. That said, given the current weak macro environment, flattish
pricing seems to be the best case for now.
Investment plans remain on track
TCS is holding on to its gross hiring plans of 60,000 for FY12. It has also
started visiting engineering campuses for hiring of fresh graduates for FY13
and per the CFO, initial indications are of a YY increase in hiring. With an
unused capacity of just 5,000 seats at Chennai SEZ, TCS is augmenting its
capacity through centres in Pune, Ahmedabad, Indore and Bhubaneswar. TCS
also plans to increase its China headcount to 5,000 from 1,300 currently.
Sector outlook remains challenged for now
Tech stocks have underperformed the Indian benchmark indices over the last
3 months. We believe that the current environment of macro-demand
uncertainty will continue to weigh on any secular out-performance of Indian
techs, currency depreciation notwithstanding. Strong volume uptick needs to
precede stock upsides ahead. While the recent de-rating of tech stocks stems
from global cyclical worries, longer-term PE multiples also remain at risk from
prospects of lower growth rates and a changing business model ahead.
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