Tata Consultancy Services Ltd.
Result Update: Q2 FY12
C.M.P: Rs. 1175.50
Target Price: Rs. 1328.00
Date: Dec. 3rd 2011 BUY
Stock Data: SYNOPSIS
Sector: IT Tata Consultancy Services Ltd. (TCS) is
Face Value Rs. 1.00 an Indian IT services, business
52 wk. High/Low (Rs.) 1247.00/902.90 solutions & outsourcing company
headquartered in Mumbai, India.
Volume (2 wk. Avg.) 171000.00
BSE Code 532540 During the quarter ended, the robust
Market Cap (Rs in mn) 2300688.60 growth of revenue is increased by
25.27% Rs. 116334.90 million.
Share Holding Pattern TCS has added thirty-five new clients in
the first quarter of the current fiscal.
Total head count of the company as on
September 2011 stood at 214,770 with
utilization rate at 83.1%.
TCS has been ranked 3rd in the FinTech
1 Year Comparative Graph TCS & Felda Prodata Systems Sdn Bhd
signed a collaboration agreement to
jointly develop & deliver IT services and
solutions to the Malaysian market.
TCS BaNCS Core Banking released
version 12.0 for banking & capital
Net Sales and PAT of the company are
expected to grow at a CAGR of 21% and
TCS Ltd BSE SENSEX 19% over 2010 to 2013E respectively.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 373245.10 117823.60 90680.40 46.33 25.37
FY 12E 462823.92 142070.94 101794.23 52.01 22.60
FY 13E 536875.75 165260.64 118953.90 60.78 19.34
Peer Group Comparison
Name of the company CMP(Rs.) (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
TCS Ltd. 1175.50 2300688.60 46.33 25.37 9.43 1400.00
Infosys Ltd. 2696.80 154851.09 119.24 22.62 6.32 1200.00
Wipro Ltd. 394.35 96894.32 19.66 20.06 4.54 200.00
HCL Ltd. 417.35 28820.52 20.29 20.57 4.92 375.00
Q2 FY12 Results Update
TCS Ltd has reported consolidated net profit of Rs 23010.00 million for the quarter
ended on September 30, 2011 as against Rs 21692.10 million in the same quarter
last year, an increase of 6.08%. It has reported net sales of Rs 116334.90 million
for the quarter ended on September 30, 2011 as against Rs 92863.90 million in the
same quarter last year, a rise of 25.27%. Total income grew by 33.42% to
Rs.117561.80 million from Rs. 93571.40 million in the same quarter last year.
During the quarter, it reported earnings of Rs 11.76 a share, registering 6.08%
growth over prior year period.
Quarterly Results – Consolidated (Rs in mn)
As At Sep-11 Sep-10 %change
Net sales 116334.90 92863.90 25.27
PAT 23010.00 21692.10 6.08
Basic EPS 11.76 11.08 6.08
Net Sales & PAT Growth
During the quarter, Net sales rose by 25.27% to Rs. 116334.90 million from
Rs.92863.90 million in the same quarter last year and the Total Profit for the
quarter ended September 2011 was Rs. 23010.00 million grew by 6.08% from
Rs.21692.10 million compared to same quarter last year.
The basic EPS of the company stood at Rs.11.76 for the quarter ended September
2011 from Rs.11.08 for the quarter ended September 2010.
Break up of Expenditure
TCS and Felda Prodata sign a Strategic Collaboration
Tata Consultancy Services and Felda Prodata Systems Sdn Bhd (PRODATA) signed
a collaboration agreement to jointly develop and deliver strategic Information
Technology (IT) services and solutions to the Malaysian market. Both organizations
will jointly identify opportunities as part of their “go-to-market” efforts to provide IT
services and participate in tenders from government agencies. TCS and PRODATA
will share their technology expertise in areas including but not limited to open
source solutions, SAP-ERP application, application development & maintenance,
shared services/business process outsourcing (BPO), infrastructure services and
business intelligence & performance management (BIPM).
Deutsche Bank selects TCS for a major transformation initiative
Tata Consultancy Services has been selected by Deutsche Bank as a strategic
partner for its Production Management Transformation Initiative, within its Capital
Markets business unit. TCS will deliver a global application service desk, service
operations and all other IT Infrastructure Library (ITIL) services to the bank at
locations across seven countries – the USA, UK, Germany, Hungary, Philippines,
Singapore and India.
TCS Launches TCS BaNCS Core Banking Version 12
Tata Consultancy Services launched TCS BaNCS Core Banking Release version
12.0 at the annual flagship event for banking and capital markets, SIBOS 2011, in
Toronto. This version continues to build on the industry’s leading functionality,
flexibility and scalability for which the product has come to be associated globally.
TCS ranked third among global providers of financial technology
Tata Consultancy Services has been ranked third in the FinTech 100, an annual
international listing of the top vertical technology vendors that derive more than
one-third of their revenue from financial services industry as named by American
Banker, Bank Technology News and IDC Financial Insights. TCS has been ranked
among the top 10 in the FinTech 100 for the fourth consecutive year. Nearly 45% of
TCS’ revenue came from banking, financial services & insurance during the
financial year 2010-11.
TCS Ranked World’s 7th Greenest Company
Tata Consultancy Services has been ranked as the world’s 7th greenest company
in Newsweek’s Green Rankings 2011. In addition, TCS is the highest ranked Asia-
based company and second highest ranked globally in the Information Technology
& Services company category. The Green Rankings focus on the largest publicly
traded companies in America and worldwide.
TCS BaNCS Core banking to transform IT
Tata Consultancy Services has announced that Scotwest and Capital Credit Unions
chose TCS BaNCS Core Banking as their IT platform to transform their
infrastructure to address emerging opportunities in Community Banking in the
United Kingdom. Cussco, the joint company set up by both these credit unions,
will deploy the common platform and support its entire IT architecture throughout
the UK to serve its existing customers as well as seek growth avenues, as new
regulations open more opportunities in community banking.
TCS Awarded “Supplier of the Year” by Owens Corning
Tata Consultancy Services has received the “Supplier of the Year” award from
Owens Corning. Owens Corning’s Supplier of the Year award recognizes the
contribution and commitment of its finest partners.
TCS develops CDMI Automated Test Suite
Tata Consultancy Services announced the development of the Cloud Data
Management Interface (CDMI) Automated Test Suite (CATS), an innovative solution
that enables clients to test their compliance with CDMI specifications, while
simultaneously accelerating the development lifecycle of CDMI.
Diligenta wins $2.2 billion (£1.37 billion) contract with Friends Life
Diligenta, a leading business process outsourcing (BPO) provider in the UK and a
subsidiary of Tata Consultancy Services (TCS) will assume administration
responsibility for 3.2 million policies for Friends Life, a provider of pensions,
investments and insurance. The agreement, effective March 1, 2012, is worth $2.2
billion (£1.37 billion) over 15 years. Diligenta will assume administration
responsibility for much of Friends Life’s closed book protection business and
significant part of its corporate benefits business. Diligenta and TCS will deliver IT
infrastructure and IT services with some policies migrating to TCS BaNCS
Insurance, a globally recognized industry-leading insurance platform.
TCS positioned as a Leader in Insurance Applications Outsourcing
Tata Consultancy Services (TCS) has recognized TCS as a leader in insurance
domain knowledge and in the insurance applications outsourcing market by
Everest Group, an advisory and research firm on global services in its November
2011 report. The evaluation was based on the five key dimensions of the group’s
proprietary PEAK Matrix: market success, scale, scope, domain investments and
delivery footprint. On an aggregate basis, TCS received the highest rating out of all
the service providers in the analysis of delivery capability and the second highest
rating in the analysis of market success (based on transaction activity).
TCS launches AURA DBMS for Automotive Retailers
Tata Consultancy Services, in cooperation with SAP AG, launched AURA Dealer
Business Management (DBM) Golden Template, based on an innovative, business-
ready and “lean” model built for the auto retail sector. The AURA DBM Golden
Template is a result of co-innovation and joint development efforts between TCS
and SAP. The new AURA service has been built on the SAP® ERP and SAP Dealer
Business Management applications. The service can help jump start business
operations of auto retailers and contains standard baseline functionality, best
practices and end-to-end process scenarios for sales, service, parts business,
finance, human resources and their related reports.
TCS launches a major partnership with the Amsterdam Marathon
Tata Consultancy Services was appointed as the official technology partner to the
Amsterdam Marathon and has taken up the title sponsorship of the event for the
five-year period 2011-2015. TCS’ significant portfolio of sports partnerships
includes tie-ups with Formula 1 racing team Ferrari, pro-cycling team Garmin-
Cervélo and several marathons in major cities in the world including Bangalore,
Boston, Chicago, Mumbai and New York.
Segment Line Distribution
Clients Revenue Contribution
Growth by Domain
Domain-wise contribution to the revenue is given below:
Q2 FY12 Q1 FY12
IP Revenue (%)
BFSI 43.5 43.3
Telecom 10.7 11.7
Retail & Distribution 12.1 11.6
Manufacturing 7.8 7.6
Hi-Tech 5.9 5.8
Life Science & Healthcare 5.3 5.2
Travel & Hospitality 3.8 3.7
Energy & Utility 4.3 3.8
Media & Entertainment 2.1 2.2
Others 4.5 5.1
Established in 1968, Tata Consultancy Services (TCS), a member of the Tata Group is
considered as the largest IT services firm in Asia based on its record of outstanding
service, collaborative partnerships, innovation and corporate responsibility.
TCS Ltd. is an Indian IT services, business solutions and outsourcing company
headquartered in Mumbai, India. The service is delivered through its unique Global
Network Delivery Model™ (GNDM), recognized as the benchmark of excellence in
software development. TCS has over 214,000 of the world’s best-trained consultants in
42 countries. The company has generated consolidated revenues of US $8.2 billion for
year ended March 31, 2011. It is the largest provider of information technology in Asia
and second largest provider of business process outsourcing services in India.
TCS' ability to deliver high-quality services and solutions is unmatched. It is the
world’s first organization to achieve an enterprise-wide Maturity Level 5 on both
CMMI® and P-CMM®, using the most rigorous assessment methodology - SCAMPISM.
Additionally, TCS’ Integrated Quality Management System (iQMS™) integrates process,
people and technology maturity through various established frameworks and practices
including IEEE, ISO 9001:2000, CMMI, SW-CMM, P-CMM and 6-Sigma.
Products and services offered by TCS
TCS offers a wide range of IT services, outsourcing and business solutions.
• IT Services
• IT Infrastructure Services
• Enterprise Solutions
• Business Process Outsourcing
• Platform BPO Solutions
• Business Intelligence & Performance Management
• Engineering & Industrial Services
• Small and Medium Business
• Connected Marketing Solutions
• Business Consulting
• IT Consulting
• Business Solutions
• TCS BaNCS
• TCS Technology Products
Other Products -
• TCS Clin-e2e
• TCS Hospital Management Solution
• TCS Silicone Ambulatory ECG Device and Solution
• TCS Enterprise Integration & Control Environment Solution/ Energy & Utilities
• TCS Bio-informatics Solution
• VERICUT - Machine Simulation Software
• Banking & Financial Services
• Energy, Resources & Utilities
• Life Sciences & Healthcare
• High Tech
• Media & Information Services
• Retail & Consumer Products
• Travel Transportation & Hospitality
12 Months Ended Profit & Loss Account (Consolidated)
Value (Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 300289.20 373245.10 462823.92 536875.75
Other Income 2720.70 6040.00 7852.00 9029.80
Total Income 303009.90 379285.10 470675.92 545905.55
Expenditure -213343.70 -261461.50 -328604.99 -380644.91
Operating Profit 89666.20 117823.60 142070.94 165260.64
Interest -161.00 -264.80 -280.69 -297.53
Gross profit 89505.20 117558.80 141790.25 164963.11
Deprecation -6608.90 -7352.60 -8161.39 -8977.52
Profit Before Tax 82896.30 110206.20 133628.86 155985.59
Tax -11969.70 -18308.30 -30734.64 -35876.69
Profit After Tax 70926.60 91897.90 102894.23 120108.90
Minority interest -909.90 -1214.50 -1100.00 -1155.00
Share of Profit & Loss of Asso. -10.30 -3.00 0.00 0.00
Net Profit 70006.40 90680.40 101794.23 118953.90
Equity capital 1957.20 1957.20 1957.20 1957.20
Reserves 181710.00 242090.90 344985.13 465094.03
Face value 1.00 1.00 1.00 1.00
EPS 35.77 46.33 52.01 60.78
Quarterly Ended Profit & Loss Account (Consolidated)
Value (Rs.in.mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E
Description 3m 3m 3m 3m
Net sales 101574.90 107970.20 116334.90 120988.30
Other income 2435.80 2941.40 1226.90 1472.28
Total Income 104010.70 110911.60 117561.80 122460.58
Expenditure -70644.60 -77641.70 -82493.80 -85417.74
Operating profit 33366.10 33269.90 35068.00 37042.84
Interest -36.50 -47.20 -96.40 -91.58
Gross profit 33329.60 33222.70 34971.60 36951.26
Depreciation -2128.60 -2079.30 -2317.70 -2503.12
Profit Before Tax 31201.00 31143.40 32653.90 34448.14
Tax -4637.50 -6738.50 -9377.30 -7406.35
Profit After Tax 26563.50 24404.90 23276.60 27041.79
Minority interest -334.00 -257.30 -266.60 -235.00
Share of Profit & Loss of Asso 0.00 0.00 0.00 0.00
Net Profit 26229.50 24147.60 23010.00 26806.79
Equity capital 1957.20 1957.20 1957.20 1957.20
Face value 1.00 1.00 1.00 1.00
EPS 13.40 12.34 11.76 13.70
Particulars FY10 FY11 FY12E FY13E
No. of Shares (in Million) 1957.20 1957.20 1957.20 1957.20
EBITDA Margin (%) 29.86% 31.57% 30.70% 30.78%
PBT Margin (%) 27.61% 29.53% 28.87% 29.05%
PAT Margin (%) 23.62% 24.62% 22.23% 22.37%
P/E Ratio (x) 32.86 25.37 22.60 19.34
ROE (%) 38.62% 37.66% 29.66% 25.72%
ROCE (%) 52.13% 51.13% 43.20% 37.24%
Debt Equity Ratio 0.0056 0.0032 0.0024 0.0019
EV/EBITDA (x) 25.66 19.53 16.19 13.92
Book Value (Rs.) 93.84 124.69 177.26 238.63
P/BV 12.53 9.43 6.63 4.93
Net sales & PAT
P/E Ratio (x)
Debt Equity Ratio
Outlook and Conclusion
At the current market price of Rs.1175.50, the stock is trading at 22.60 x
FY12E and 19.34 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs.52.01 and Rs. 60.78 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 21% and
19% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 16.19 x for FY12E and 13.92 x
Price to Book Value of the stock is expected to be at 6.63 x and 4.93 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.1328.00 for Medium to Long term investment.
Over the past few years, the Indian information technology (IT) and IT enabled Services
(ITeS) industry has been on a steady growth trajectory. The IT industry, alone, has
played a pivotal role in placing India on the world map as a major knowledge-based
economy and outsourcing hub. The major sub-segment, that entails Business Process
Outsourcing (BPO), is re-inventing itself and experiencing a paradigm shift from being
a volume-oriented proposition to a value-oriented proposition by expanding its scope
of services and providing substantial high-end solutions in the areas of Data Analytics,
Legal Process Outsourcing, etc.
The number of internet users in India crossed the 100-million mark in September
2011, growing 13 per cent over last year's figure of 87 million, according to the latest
report of the Internet and Mobile Association of India (IAMAI) co-prepared with
research firm IMRB. The study anticipates India's internet population to grow to 121
million by December 2011. Further, the country's broadband subscriber base stood at
12.69 million in August 2011, according to data released by the Telecom Regulatory
Authority of India (TRAI).
After personal computers (PCs) and laptops, tablets are mushrooming as a major
competitive avenue wherein vendors are striving hard to launch more affordable
devices for the Indian market. Second quarter of 2011experienced the release of the
iPad2 in India in less than 50 days after its US launch while Samsung is scouting for
40 per cent share of the Indian tablet market in 2011.
In the enterprise software segment, US giant Oracle claims to cater around 7,000
clients across the Indian government and private sectors; recent wins being Punjab
National Bank (PNB) - India's second-largest public sector bank and Hindustan
Petroleum Corporation (HPCL) - another Indian public sector organ. Meanwhile, Indian
IT companies like Wipro, Infosys, TCS, HCL and Mahindra Satyam are developing their
technologies to entail cloud computing applications and solutions for various
segments ranging from financial services and banking to manufacturing.
IT & ITeS - Key Developments and Investments
Between April 2000 and August 2011, the computer software and hardware sector
received cumulative foreign direct investment (FDI) of US$ 10,787 million, according to
the Department of Industrial Policy and Promotion (DIPP).
• Monster India has launched an online campus hiring initiative - 'Monster College' –
wherein it will collaborate with educational institutions across India and connect
them with over 20,000 employers for campus placements.
• Investor Relations Global Rankings (IRGR), a New York-based organisation, has
ranked Technology giant Infosys as the country's best company for corporate
governance practices, financial disclosure procedures, IR website and online
annual report. There were more than 80 companies that registered themselves for
• Tower infrastructure company Indus Tower is looking for a partner to provide end-
to-end IT solutions and Indian tech-biggies like Infosys, IBM and Wipro are in
discussions with the former for the same. The contract, potentially in the range of
Rs 2,430-2,916 crore (US$ 500-US$ 600 million), would involve areas such as
infrastructure management, application development and other related managed
services and would span for 8-10 years. Indus Tower, a joint venture firm between
Bharti Group, Idea Cellular and Vodafone Essar, owns 110,000 towers and
operates 16 out of the 22 telecom circles.
• Google, with its partner web hosting firm HostGator, has announced that it will
offer free web domain names to small and medium businesses (SMBs) in India in
order to boost internet usage in Asia's third largest economy. The company will
maintain the websites for a year without any charges and at the end of the first
year, users will be asked to pay a nominal fee if they wish to renew their domain
name. India is shelter to around 8 million SMBs of which about 400,000 have a
website and 100,000 have active online presence, said Google. Hence, the market
poses a great potential for growth.
Cloud Computing – The Emerging Technology
The model of cloud computing has attracted attention of organizations of all sizes as
the technology offers lower operational costs, scalability and mobility at every level.
Indian companies are increasingly adopting 'hybrid cloud' (a mix of private and public
cloud) to address their concerns of data privacy as well.
Indian businesses and government agencies are expected to create huge demand for
guidance in the usage of cloud computing services. There are already more than 50
cloud computing service providers in the Indian market. Meanwhile, Indian internet
services providers (ISPs) and data centre service providers including Bharti Airtel, Sify,
Trimax, and NetMagic are investing applications and bandwidth to support new cloud
NTT Communications Corp plans to invest US$ 1.58 billion in Europe and India over
2011-15 to develop its cloud computing business at a faster pace while AWS, the
world's largest cloud-based service provider, that forms about 2 percent of Amazon's
revenues, is projected to become the online retail giant's next most-profitable business
The US$ 10 billion Indian e-commerce market is expanding exponentially (it grew 47
per cent in 2011 to reach the present size) as rising internet penetration is making
customers buy more and more stuff online. Investors are also betting high in the
industry; they poured around US$ 200 million into Indian e-commerce start-ups in
last couple of years.
As a result of such growth, e-retailers, who want to focus on their core functionalities,
are expected to outsource bulky back-end operations (such as customer care, order
processing, invoice processing, finance and accounts et al) and emerge as a
substantial source of revenue to BPOs.
Retail brands are expected to bring a great transformation in online space. Women's
apparel retail brand Biba and tyre brand Bridgestone have become available online
recently. IAMAI expects online advertising to increase by 30-40 per cent in 2011-12 on
back of increased internet usage by retailers.
The government of India is leaving no stone unturned to accelerate growth of IT & ITeS
sector in the country. Earlier in 2011, the ministry had revealed its intentions to
launch e-governance initiatives that would facilitate rolling out mobile governance and
electronic service delivery bill.
Sufficient funds have also been earmarked to connect Indian villages and classrooms
across the country with knowledge centres wherein the government aims to provide
broadband connectivity to all the village panchayats by 2012.
Mr Sachin Pilot, Minister of State for Communications and IT believes that broadening
connectivity in such a manner would improve the way government interacts with
Further, the Ministry of Communications and Information Technology has revealed its
intentions to attract higher investments for IT sector in smaller cities and make
software services sector grow more than three times to US$ 300 billion by 2020. The
government also wants to increase the IT exports from US$ 59 billion currently to US$
200 billion by 2020. The projections and focus areas were laid in a draft national
policy which also stated that the government will endorse innovation, research and
development (R&D) in advanced technologies and application development in areas
such as cloud computing, mobile value-added services and social media.
The policy also aimed at employing additional 10 million skilled people in the
information communication technology sector. The sector currently has manpower
strength of 2.5 million skilled people.
IT & ITeS in India - Road Ahead
The Indian market for IT products and services is expected to consolidate its growth
achieved in 2010 and increase from US$ 19.7 billion in 2010 to US$ 41.2 billion by
2015, according to India Information Technology Report for the third quarter of
2011by Business Monitor International (BMI). BMI estimates that the Indian market
for PCs (including notebooks and accessories) will be worth around US$ 8 billion in
2011, higher from US$ 6.8 billion in 2010 while it projects IT services market at
around US$ 7.5 billion in 2011 which would further swell to a size of US$ 16.9 billion
by 2015. The report has estimated a compounded annual growth rate (CAGR) of 18
per cent for Indian software market over the span of 2011-2015.
______________ ____ _________________________
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
Firstcall India Equity Research: Email – email@example.com
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