- Dollar revenues/volumes beat estimates; Pricing corrects marginally
- Strong growth across verticals, services & geographies; Non Top-10 clients continue to do well
- OPM performance slightly better than expected; Employee additions remain decent
- Robust performance calm fears on demand environment; Assign MP as valuations appear rich
|(Rs mn)||Q1 FY13||Q4 FY12||% qoq||Q1 FY12||% yoy|
|OPM (%)||29.1||29.5||(38) bps||28.1||107 bps|
|Effective tax rate (%)||22.2||21.3||-||22.7||-|
|Other prov/minority etc||388||298||30.2||281||38.1|
|Adj. PAT margin (%)||22.1||22.2||(15) bps||22.0||2 bps|
Dollar revenues/volumes beat estimates; Pricing corrects marginally
TCS' Q1 FY13 top-line performance bettered our estimates once again both in terms of volumes as well as dollar revenue growth. The company posted 3% qoq dollar revenue growth on the back of volumes growth of 5.3% qoq. This came in despite cross currency headwind of ~1.3% as well as pricing correction of 1%. Offshore revenues grew 3.4% qoq as compared 2% qoq last quarter implying ramp-ups of large deals won in recent quarters. Deal won during the quarter were strong with eight large deals won across verticals and geographies. TCS commentary on demand environment remained robust with stable pricing and largely unaffected discretionary spends.
Strong growth across verticals, services & geographies; Non Top-10 clients continue to do well
TCS continues to impress on the breadth of its growth across verticals, services and geographies. Most notable is the growth of BFSI vertical that grew 5% qoq in dollar terms. Among other verticals, Retail and telecom grew strongly at 8.8% qoq and 6.1% qoq in dollar terms. Services growth was led by BPO (ramp up of Friends Life deal), Enterprise solutions, IMS and Consulting which grew 16.5% 5.8%, 5%, 6% qoq respectively. Across geographies, UK/Europe led the growth posting 9.6% growth qoq followed by US with 3.2% growth qoq in dollar terms. India qoq performance continued to be choppy as guided by the management de-growing 14% qoq (7% in constant currency terms).Within clients, non Top-10 continued to lead the growth registering a 4% qoq growth. Client migrations across buckets were robust with almost all showing increments (except US$100mn+ clients).
OPM performance slightly better than expected; Employee additions remain decent
TCS' OPM performance for Q1 FY13 was marginally better than our expectation. Operating margin for the quarter fell slightly by 38bps qoq to 29.1% (versus expectation of 67bps correction). Volume led improvement in utilization, SG&A leverage and most importantly rupee depreciation (8% qoq) were key tailwinds. These largely offset the impact of salary hikes (200bps), pricing correction (117bps), strong employee additions and higher visa costs. Better than expected EBITDA, in-line other income and higher tax-rate led to largely in-line PAT of Rs32.8bn. Going ahead, decent volumes, higher fresher addition and better offshoring are expected to remain key levers to protect operating margin . On the employee front, the gross additions/net additions were reasonable at 13831/4962 employees during the quarter. While the reported attrition inched down to 10.9%, quarterly annualized attrition increased marginally to 14.7%. This, we believe, is largely on the back of employees leaving for higher studies during the quarter. Utilization ex-trainees at 81.3% improved sequentially. Management maintained its guidance of adding 50000 employees on gross basis during the financial year.
Robust performance calm fears on demand environment; Assign MP as valuations appear rich
TCS delivered another set of satisfying results allaying doubts of a worsening demand/spending environment. The broad based growth across verticals and service lines especially in troubled areas of BFSI and telecom is heartening. As opposed to Infosys, the TCS management’s commentary also continued to be highly constructive especially in terms of decision making cycles, discretionary spending as well as project ramp-ups. We believe TCS’ full services play and commendable execution should continue to benefit it especially in the current uncertain environment. Though we remain positive on TCS, valuations at 16x one year forward earnings do not provide sizeable upside. We assign MP.
|Y/e 31 Mar (Rs m)||FY11||FY12||FY13E||FY14E|
|yoy growth (%)||24.3||31.0||26.9||12.2|
|yoy growth (%)||26.3||22.7||36.9||9.2|
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