Tata Consultancy Services Research Report

25November2012 sphere of influenceITConsulting&Software CMP1288 RatingBUY getPrice1500 StockInfo InvestmentPeriod15months Introduction TataConsultancyserviceLimitedisanIndian multinationalinformationtechnologyservices, blood line solutionsandoutsourcing goComp whateverfoundedby JRDTatainthe form1968headquarteredinMumbai. TCSis a supplementaloftheTataGroup. ItisoneofIndiasmost valuablecompaniesandisthelargestIndia? basedIT servicescompanyby2012grosss. Ithas183offices across43countriesand117deliverycentresacross21 countries.Italsohas58subsidiarycompanies. Products TCSprovidesawiderangeofITrelatedproducts suchasapplicationdevelopment,BPO(business physical motion outsourcing),consulting,enterprisesoftware,payment processing,softwaremanagementand preparationservices. Followingaretheservicelinesandtheirpercentagetothe totalTCSrevenueintheQ22012? 13? Applicationdevelopmentandmaintenance ADMisapartofITthat florawiththebusinesstodevelop newsoftware,keepitrunningandmakeongoing improveme nts.Assetleveragesolutions Assuranceservices Assuranceservicesprovide commutativeandprofessional opinionsthatreducetheinformationrisk(riskthatcomes fromincorrectinformation). Business experience BIistheabilityofanorganizationtocollect,maintain,and organizeknowledge. Thisproduceslargeamountsof informationthat so-and-sohelpdevelopnewopportunities. rapeketCap2,52,109crs Equity195. 7crs lay outValue1 52WeekH/L1438? 1045 centralFinancials(incrores) unclutterSales EBIDTA Margin% Net meshwork 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 Valuation abridgment 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 signifier(%) showman FII DII Retail 74 15 6. 5 4. 5 PromoterandPromotergroup TataSonsLtd73. 75% other(a)s0. 25% ForeignInstitutionalInvestors telephone numberofFIIShareholders853 someoftheminclude DomesticInstitutionalInvestors LifeInsurance pottyofIndia . 10% FranklinTempletonInvestment property 1. 67% Others1. 73% Retail Individualswith revaluelessthan1lac 3. 5% Individualswithvaluemorethan1lac 1% DividendPolicy(Mar12) Indicators TCS Wipro EPS D/P symmetry (%) D/R ratio (%) DivYield (%) await 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 deliverengineering moralityandoperationalefficiency, ensuringacompetitiveadvantage. Enterprisesolutions Anenterprisesolutionisanybusinesstoolthatreliably empowersyoutoaccess,shareandapplyresou rceswithany ofyourpeersandcustomers,anywhere,atanytime.ITinfrastructureservices IT pedestalServices(IS)OrInfrastructureManagement Services(IMS)deliverend? to? end,effectiveandreliable solutionsthat understandhelptobusinessoperations. Services Contributionto Quarteron boilers suitrevenue 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 IMCwasthekey gainserviceline,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 detonatorStructure(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 unlocked 2. 76 5. 25 TotalDebt 96. 23 41. 12 Total 24952. 86 19620. 1 Capital *PreferenceSharesworth100crsissuedtoTata SonsLtd(theholdingcompany)whichwouldbe redeemableatparattheendofsixyearsfromthe ageofallotmentie. March28,2008,butmaybe redeemableanytimeafter3yearsfromthedateof allotmentattheoptionofshareholder. Theseshares would pick outafixedcumulativedividendof1%pa anda multivariatenon? cumulativedividendof1%ofthe differencebetweentherateofdividenddeclared duringtheyearonthe uprightnesssharesandaverage rateofdividenddeclaredontheequitysharesfor threeyearsprecedingtheissueofredeemable preferenceshares. BFSIgrew4. %QoQ, contemptbeingaffectedbythe ongoing environmentandcontributed87%totheincremental revenues. Whiletelecomtoogrewatanimpressive5. 1% notwithstandingindustrytrouble,themanufacturingandretail verticalsgrewthefastest. Geographies return(Q22012? 2013) Verticals Contributionto QoQ(%) overallrevenue (%) atomic number 7the States 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 Weighted totalCostofCapital RfRiskFreeRateof make=8%,Rm MarketReturn(nifty)for1year= 10. 80%(moneycontrol. com),Beta= 0. 72(reuters. com) revenueRate= 2390. 35/13366. 33( valuateexpenses/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 rattan palmTataChairman SRamadoraiViceChairman CyrusMistryDeputyChairman SuprakashMukhopadhyay political partySecretary ComplianceOfficer RSommer,IHussain,VKelkar,AMehta,VThyagarajan, LauraCha,CMChristensen,PAVandrevalaOPBhatt DirectorsCompetitors Infosys,Wipro,HCL,Mahindra? Satyam,TechMahindra, PatniComputersetc. FinancialSummary Profit Balance tag 2011 Revenuefrom operations OtherIncome TotalIncome Expenses a. Employee benefit expenses b. Operation and other(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 29275. 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. Current assess 13366. 33 8700. 43 2865. 38 1335. 73 30. 32 (235. 61) b. Deferredtax (38. 93) c. blandcredit entitlement Total (436. 10) 2390. 35 1130. 44 Profitaftertax 10975. 98 7569. 99 EarningsPer Share 55. 95 38. 61 Liabilities ShareholdersFunds Equitycapital Preferencecapital Reserves broad(a) Non? currentLiabilities a. LongTermBorrowing b. Deferredtaxliabilities(net) c. Otherlong? marchesliabilities d. Longtermprovisions keep down CurrentLiabilities a. Tradepayables b. Othercurrentliabilities c. absolutely? ermprovisions TOTAL SOURCESOFfinances Assets Non? currentAssets a. refractoryassets 1. Tangibleassets 2. Intangibleassets 3. Capitalwork? in? progre ss 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? TermProvisionsconsistofprovisionforemployeesinclude tipandotheremployeebenefits. Short?TermProvisionsincludesprovisionforemployeebenefitsandforproposedfinaldividendon equityshares. CurrentLiabilitiesincludesincomereceivedinadvance,fairvalueof abroadexchangeforwardsand currencyoptionscontractssecuredagainsttradereceivables. RatioAnalysiswith equalCompetition? 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 QuickRatio 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