SMC Global`s view on TCS

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SMC Global`s view on TCS

SMC Global has come out with its report on Tata Consultancy Services (TCS).

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SMC Global has come out with its report on Tata Consultancy Services (TCS).

Sequential Performance:

For the quarter ended December 2011, TCS reported 13% increase in revenues to `13203.99 crore. Growth in Q3 came across markets. Among mature markets, Europe led the growth story with 18.1% growth sequentially, followed by the US (13.3%) and UK (9.5%). In the growth markets, Latin America showed significant momentum with 18.6% growth sequentially followed by India (14.8%) and Asia-Pacific (15.7%). All industry sectors have shown strong growth with all sectors growing at more than double digits sequentially except telecom. In terms of services, Enterprise Solutions, Assurance and Infrastructure Services, Global Consulting grew at a fast, double-digit rate. OPM improved by 190bps to 31% due to decrease in employee costs by 206bps to 36.49% of sales. As a result, the operating profit increased by 21% to 4093.81 crore.

Other income was loss of 87.28 crore against gain of 122.69 crore due to forex loss of 300.81 crore against 79.9 crore resulting in 14% increase at PBIDT to 4006.53 crore. Interest costs decreased by a significant 50% to 4.86 crore and depreciation charges rose by 1% to 234.83 crore but resultant PBT remained 15% higher at 3766.84 crore. PAT grew by 22% to 2836 crore due to1% decline in tax provisioning to 930.8 crore since there was 213.9 crore of tax on dividend from foreign subsidiaries in the sequential quarter, effective tax rate being 24.71%, down by 401bps. The rise in minority interest by 25% to 33.26 crore saw the final Net profit rise by 22% to 2802.77 crore.

Corresponding performance:

On a yearly basis, revenues increased by 37% to 13203.99 crore. OPM rose by 100bps to 31% due to 27bps decrease in employee expenses to 36.5% of sales, fall in overseas expenses by 80bps to 13.74% of sales despite 43bps rise in services rendered by business associates costs to 4.95% of sales. Subsequently, Operating profits increased by 41% to 4093.81 crore. Other Income was loss of 87.28 crore against gain of 194.21 crore due to forex loss Rs 300.81 crore against gain of 52.16 crore. which saw PBIDT rising by only 29% to 4006.53 crore but interest costs remained flat at 4.86 crore and depreciation charges grew by 25% to 234.83 crore but PBT grew by similar 30% to 3766.84 crore. The increase in tax outgo by 85% to 930.81 crore at effective tax rate of 24.71%, up 733bps caused the PAT to increase by 18% to 2836 crore. Minority interest increased by 25% to 33.26 crore which saw final Net profit rise by 18% to 2802.77 crore

Operating performance:

• During the quarter, TCS added 40 new clients (35 in the sequential quarter) taking the total number of active clients to 1003 (1010 in the sequential quarter) with revenues from new business up by 100bps to 1.7%.
• TCS added on gross basis 18,907 employees (11,981 net additions) during the quarter taking the total workforce to 226,751 employees including subsidiaries. The utilization rate for the quarter was 82% (excluding trainees) and 74% (including trainees) with attrition rate at 12.8%.
• The revenue share of Time & Material contract was 53.6% as against 53.2% in sequential quarter and fixed price share was 46.4% as against 46.8% during the same period. The revenue generation as per delivery location (excluding domestic clients) was onsite of 45% (45.2% q-o-q), GDC/RDC of 4.5% (3.9% q-o-q) and offshore of 50.5% (50.9% q-o-q).
• As far as client concentration goes, on LTM basis, top client' contribution to revenues was flat at 6.9%, top 5 clients was down 40bps to 19.6% and top 10 clients declined by 60bps to 27.7%. TCS has 95 clients (+1) above the US$ 20 million mark, 39 clients (+3) above $ 50 million mark and 14 clients (+2) above US$ 100 million.
• Sequentially, in rupee terms, in the IT solutions space, ADM grew 11.7%, Business Intelligence grew 6.8%, Enterprise Solutions 17.6% and Assurance 13.4%. Infrastructure Services' grew 24.8%, Global Consulting' 22.5%, Asset leverage' 5.9%, Engineering & Industrial services' grew 7.1% and BPO' 13.1%.
• In the industry verticals, BFSI' grew 12.5%, Retail & Distribution 15.1%, Hi-tech' 13.5%, Manufacturing' 14.2%, Life sciences & healthcare' 14.8%, Energy & utilities' 10.5%, Travel & Hospitality 13.9% and Media & Entertainment' 19.8%. Among the laggards, telecom grew 6.9%.
• In geographies, North America grew 13.3%, Latin America grew 18.6%, UK 9.5%, Continental Europe 18.1%, India 14.8%, APAC 15.7% and MEA 7.7%.

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