Tata Consultancy Services Research Report

25November2012 SectorITConsulting&Software CMP1288 RatingBUY TargetPrice1500 StockInfo coronationPeriod15months Introduction TataConsultancyServicesLimitedisanIndian multinationalinformationtechnologyservices, handicraft solutionsandoutsourcingServicesCompanyfoundedby JRDTataintheyear1968headquarteredinMumbai. TCSis asubsidiaryoftheTataGroup. ItisoneofIndiasmost valuablecompaniesandisthelargestIndia? basedIT servicescompanyby2012grosss. Ithas183offices across43countriesand117deliverycentresacross21 countries.It overlyhas58subsidiarycompanies. Products TCSprovidesawiderangeofITrelatedproducts suchasapplicationdevelopment,BPO(businessprocess outsourcing),consulting,enterprisesoftware,payment processing,softwaremanagementand studyservices. Followingaretheservicelinesandtheirpercentagetothe totalTCSrevenueintheQ22012? 13? Applicationdevelopmentandmaintenance ADMisapartofITthatworkswiththebusinesstodevelop pertlysoftware,keepitrunningandmakeongoing improvements.Assetleveragesolutions Assuranceservices Assuranceservicesprovideindependentandprofessional opinionsthat decocttheinformationrisk(riskthatcomes fromincorrectinformation). Businessintelligence BIistheabilityofanorganizationtocollect,maintain,and organizeknowledge. Thisproduceslargeamountsof informationthatcan serve welldevelopnewopportunities. MarketCap2,52,109crs impartiality195. 7crs FaceValue1 52WeekH/L1438? 1045 KeyFinancials(incrores) wampumSales EBIDTA Margin% crystalizeProfit EPS Dividend FY11? 12 38,858. 55 33. 87 13366. 33 55. 97 25 FY10? 11 29,275. 0 29. 47 8700. 44 38. 62 14 ValuationSummary FY11? 12 20. 60 8. 5 55. 31 44. 24 0. 72 FY10? 11 23. 7 10. 4 44. 38 38. 80 na Priceto Earning Priceto Book RoCE% RoNW% Beta AbsoluteRetune 3months 1year 5. 3% 3years 131. 7% TCS 30. 1% Sensex 3. 70% 17. 90% 7. 70% ShareHolding public figure(%) Promoter FII DII sell 74 15 6. 5 4. 5 PromoterandPromotergroup TataSonsLtd73. 75% Others0. 25% ForeignInstitutionalInvestors NumberofFIIShareholders853 about oftheminclude DomesticInstitutionalInvestors LifeInsuranceCorporationofIndia . 10% FranklinTempletonInvestment bills 1. 67% Others1. 73% Retail Individualswith cherishlessthan1lac 3. 5% Individualswithvaluemorethan1lac 1% DividendPolicy(Mar12) Indicators TCS Wipro EPS D/PRatio (%) D/RRatio (%) DivYield (%) Face Value Book value 55. 97 52 48 1. 94 1 19 36. 60 63. 40 1. 64 2 HCL 28. 13 49. 50 50. 50 1. 87 2 95. 25 Businessprocessoutsourcing BPOisasubsetofoutsourcingthatinvolvesthecontractingof operationsandresponsibilitiesofspecificbusinessfunctions orprocesstoathirdpartyserviceprovider.Consulting ITconsultingisafieldthatfocusesonadvisingbusinesseson howbesttouseinformationtechnologytomeettheir businessobjectives. EngineeringandIndustrialservices E deliver engineerexcellenceandoperationalefficiency, ensuringacompetitiveadvantage. Enterprisesolutions Anenterprisesolutionisanybusinesstoolthatreliably empowersyoutoaccess,shareandapplyresourceswithany ofyourpeersandcustomers,anywhere,at anytime.ITinfrastructureservices ITInfrastructureServices(IS)OrInfrastructureManagement Services(IMS)deliverend? to? end,effectiveandreliable solutionsthattransformhelptobusinessoperations. Services Contributionto Quarteron overallrevenue Quarter(%) (%) AMD 43. 1 3. 8 EnggSrvcs 4. 6 4. 6 IMC 11. 4 12. 5 EAS 14. 9 2. 5 Consulting 3 12 Products 2. 7 0. 8 Testing 7. 7 5. 9 BPO 12. 6 1. 3 IMCwasthekeygrowthserviceline,expanding12. 5%QoQ, followedbyConsultingwhichalsogrew12%QoQ. BPO,EAS andProductslaggedduringthelastquarter. SectorWisePerformance(Q22012? 3) Verticals Contributionto Quarteron overallrevenue Quarter(%) (%) BFSI Mfg Telecom Healthcare Retail Transportation Energy Media Hi? Tech Others 126. 50 99 42. 8 8. 2 10. 3 5. 2 13. 4 3. 6 3. 6 2. 2 5. 9 4. 9 4. 6 9. 0 5. 1 3. 1 6. 6 2. 2 5. 1 5. 1 3. 3 7. 2 bang-upStructure(incrores) Mar12 Mar11 Shareholdersfunds Equity 195. 72 195. 72 Preference 100 100 Reserves 24560. 90 19283. 77 Networth 24856. 63 19579. 50 Debtfunds Secured 93. 47 35. 87 Unsecured 2. 76 5. 25 entiretyDebt 96. 23 41. 12 Total 24952. 86 19620. 1 superior *PreferenceSharesworth100crsissuedtoTata SonsLtd(theholdingcompany)whichwouldbe redeemableatparattheendofsixyearsfromthe dateofallotmentie. process28,2008,butmaybe redeemableanytimeafter3yearsfromthedateof allotmentattheoptionofshareholder. Theseshares wouldcarryafixed cumulativedividendof1%pa andavariablenon? cumulativedividendof1%ofthe differencebetweenthe identifyofdividenddeclared duringtheyearontheequitysharesandaverage rateofdividenddeclaredontheequitysharesfor threeyearsprecedingtheissueofredeemable preferenceshares. BFSIgrew4. %QoQ,despitebeingaffectedbythecurrent milieuandcontributed87%totheincremental revenues. Whiletelecomtoogrewatanimpressive5. 1% despiteindustrytrouble,themanufacturingandretail verticalsgrewthefastest. GeographiesGrowth(Q22012? 2013) Verticals Contributionto QoQ(%) overallrevenue (%) NorthAmerica 52. 8 3. 2 LatinAmerica 3. 4 7. 7 UK 17. 1 5. 2 Europe 9. 5 3. 5 India 7. 5 10. 5 APAC 7. 6 7. 4 MEA 2. 1 4. 6 *APACAsiaPacific,*MEAMiddleEastandAfrica Growthwasdrivenbyemergingeconomies. India(10. 5%) grewthefastest,followedbyLatinAmericaandAPAC(7. % . 4%)respectively. UK(5. 2%)remainedstrong,with EuropeandNorthAmericagrowingat(3. 5%. 2%). BoardofDirectors ExecutiveBoardMembers WeightedAverageCostofCapital RfRiskFreeRateofReturn=8%,Rm MarketReturn(nifty)for1year= 10. 80%(moneycontrol. com),Beta= 0. 72(reuters. com)TaxRate= 2390. 35/13366. 33( appraiseexpenses/PBT) =17. 88% We(proportionofequity)=E/(E+D)= 24856. 60/24952. 85=0. 9961 Wd(proportionofdebt)=D/(E+D)= 96. 23/24952. 85=0. 0039 Kd(costofdebt)=Interestpaid/total debt=16. 0/96. 23=0. 1704 TaxShield=0. 1704(1? 0. 1788)=0. 1399 Ke(costofequity)=Rf+B(Rm? Rf)= 0. 80+0. 72(0. 108? 0. 08)=0. 10 WACC=(We*Ke)+(Wd*Kd)= (0. 9961*0. 10)+(0. 0039*0. 1399)= 10. 015% NChandrasekaranCEO SMahalingamCFO Non? ExecutiveBoardMembers RatanTataChairman SRamadoraiViceChairman CyrusMistry alternat eChairman SuprakashMukhopadhyayCompanySecretary ComplianceOfficer RSommer,IHussain,VKelkar,AMehta,VThyagarajan, LauraCha,CMChristensen,PAVandrevalaOPBhatt DirectorsCompetitors Infosys,Wipro,HCL,Mahindra? Satyam,TechMahindra, PatniComputersetc. FinancialSummary Profit BalanceSheet 2011 tax incomefrom operations OtherIncome TotalIncome Expenses a. Employee benefit expenses b. Operation and early(a) expenses 2012 2012 195. 72 100 24560. 91 24856. 63 96. 23 118. 10 197. 59 154. 78 566. 70 2847. 18 1598. 56 4389. 74 8835. 48 34258. 81 4012. 16 51. 46 1399. 82 5463. 44 5150. 15 139. 74 4332. 81 2636. 88 17723. 02 538. 24 4. 14 1567. 47 9107. 72 3280. 07 1648. 2 389. 43 16535. 79 34258. 81 2011 195. 72 100 19283. 77 19579. 49 36. 33 69. 32 129. 91 76. 17 311. 73 2153. 38 1584. 27 2413. 94 6151. 59 26042. 81 3363. 78 58. 40 1072. 86 4495. 04 5457. 91 52. 03 2864. 09 2603. 26 15472. 33 337. 58 5. 37 836. 37 4806. 67 3120. 52 1369. 05 94. 92 10570. 48 26042. 81 38858. 54 2927 5. 41 2685. 18 494. 73 41543. 72 29770. 14 14100. 41 10221. 85 13372. 41 10290. 03 c. Financecosts 16. 40 d. Depreciation 688. 17 and Amortisation 20. 01 537. 82 TotalExpenses 28177. 39 21069. 1 Profitbefore Tax Tax expenditure a. Currenttax 13366. 33 8700. 43 2865. 38 1335. 73 30. 32 (235. 61) b. Deferredtax (38. 93) c. MATcredit entitlement Total (436. 10) 2390. 35 1130. 44 Profitaftertax 10975. 98 7569. 99 EarningsPer Share 55. 95 38. 61 Liabilities ShareholdersFunds Equitycapital Preferencecapital Reserves TOTAL Non? currentLiabilities a. yenTermBorrowing b. Deferredtaxliabilities(net) c. Otherlong? termliabilities d. Longtermprovisions TOTAL CurrentLiabilities a. Tradepayables b. Othercurrentliabilities c. Short? ermprovisions TOTAL SOURCESOFFUNDS Assets Non? currentAssets a. Fixedassets 1. Tangibleassets 2. intangibleassets 3. Capitalwork? in? progress TOTAL b. Non? currentInvestments c. Deferredtaxassets(net) d. Longtermloans e. Othernon? currentassets TOTAL CurrentAssets a . CurrentInvestments b. Inventories c. UnbilledRevenue d. Tradereceivables e. Cashandbankbalances f. Short? termloan g. Othercurrentassets TOTAL APPLICATIONOFFUNDS Long? TermProvisions broodofprovisionforemployeesincludegratuityandotheremployeebenefits. Short?TermProvisionsincludesprovisionforemployeebenefitsandforproposedfinaldividendon equityshares. CurrentLiabilitiesincludesincomereceivedinadvance, ordinaryvalueofforeignexchangeforwardsand currencyoptionscontractssecuredagainsttradereceivables. RatioAnalysiswithPeerCompetition? FY? 12 27. 52 29. 30 26. 15 55. 31 44. 24 126. 50 In(%) GrossProfitMargin OperatingProfitMargin NetProfitMargin ReturnonCapital Employed ReturnonNetWorth ReturnonTotalAssets TCS Wipro FY? 11 FY? 12 FY? 11 ProfitabilityRatios 28. 2 17. 29 19. 62 29. 96 19. 63 21. 90 25. 44 14. 39 17. 96 44. 38 21. 41 22. 34 38. 80 99. 53 19. 23 20. 41 HCLTechnologies FY? 12 FY? 11 24. 21 28. 18 25. 66 33. 64 29. 53 19. 13 23. 42 24. 31 21. 20 20. 45 CurrentRatio Qu ickRatio Debt? EquityRatio AssetTurnoverRatio FixedAssetsTurnover Ratio DebtorsTurnoverRatio 2. 45 2. 43 0. 01 1. 74 5. 39 5. 59 SolvencyRatios 2. 41 1. 92 1. 45 2. 40 2. 48 2. 20 0. 01 0. 22 0. 22 ManagementEfficiencyRatios 4. 91 1. 14 3. 45 4. 91 3. 81 3. 45 7. 19 4. 61 4. 87 1. 38 1. 42 0. 11 1. 26 2. 88 4. 88