IT

14 Oct

TCS: Focus on getting double-digit growth in retail and BFSI

Update on the Indian Equity Market:

Following the global peers, the markets traded higher on Friday with the Nifty closing 0.6% up at 11,305. The September quarter result season started on a negative note with TCS and IndusInd bank declaring the results lower than street estimates. Among the sectoral indices, 9 out of 11 major indices were up with Metal (2.3%), IT (1.5%) and FMCG (1.0%) leading the gains while Media (-0.3%) and Pvt Banks (-0.03%) were the only sectors that closed in the red. Within the stocks, Cipla (4.7%), Infosys (4.1%) and Vedanta (3.9%) led the index higher while Indian Oil (-3.3%), Yes bank (-2.9%) and GAIL (-1.8) brought the gains down.

TCS: Focus on getting double-digit growth in retail and BFSI

Key takeaways from the interview of Mr Rajesh Gopinathan, MD & CEO and Mr Ganapathy Subramaniam, COO, Tata Consultancy Services Ltd. (TCS); dated 11th October 2019 with CNBC TV18:

  • Mr Gopinathan mentioned that the March quarter is a very crucial quarter for the company as December is the weakest quarter for the company.
  • The focus of the company is to get back to double-digit growth. The company believes that the opportunity for growth is present in the markets. Irrespective of volatility, the company has a full list of services to achieve the growth in both weak as well as strong markets scenario.
  • On the possibility of a global slowdown, Mr Gopinathan mentioned that North America till a quarter back was growing in double digits and BSFI was back in double-digit. In Europe and the UK, the company has experienced high double-digit growth for a long period of time. It is just an adjustment phase and the company is confident about future growth.
  • About future prospects, Mr. Subramaniyam said that the net customer additions, as well as customer band movements, have been great. The employee addition during the quarter was at an all-time high. All this will help the company to grow. The order book including in BFSI (Banking, Financial Services, and Insurance) that the company has signed during the quarter was also impressive according to him.
  • The focus in the future is to get double-digit growth in the retail and BFSI segment for the company.
  • About the margins for the quarter, Mr. Subramaniyam said that they had planned for much higher growth and the intake of employees was also high during the quarter. So when the company has additional hiring related cost and the revenue do not commensurate with that, that puts pressure on the margins.
  • About the employee structure, they mentioned that the company has front-ended the entire human resource thing this year and 30,000 people are already in the system which has never happened before. All these employees are going through rigorous talent development and they will be deployed in the 3rd and 4th quarters. The entire learning infrastructure has been significantly strengthened so that the employees will be at certain competencies.

Consensus Estimate (Source: market screener website)

  • The closing price of TCS was ₹ 1,989/- as of 11-October-19. It traded at 23x/ 21x/ 19x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 87.4/ 96.5/ 105.0 respectively.
  • Consensus target price of ₹ 2,118/- implies a PE multiple of 20x on FY22E EPS of ₹ 105/-.
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05 Aug

Infosys (INFY IN): Constant currency growth rate pick-up in 1QFY20, management ups revenue guidance for FY20

1QFY20 Results

Dated: 15th July 2019

Infosys (INFY) reported 10.6% YoY revenue growth in USD terms; highest in last 10 quarters, to USD 3,131 mn in 1QFY20. The digital business revenues (36% of the total company revenues) increased by 39% YoY to USD 1,119 mn while core business revenues declined by 0.8% YoY to USD 2,012 mn. 
• The revenues in INR terms increased by 14% YoY to Rs 2,15,390 mn. Appreciation of INR v/s USD impacted the revenue growth during the period.
• Depreciation increased by 56% YoY to Rs 6,810 mn (v/s Rs 4,360 mn in 1QFY19) and financial interest stood at Rs 400mn on account of the adoption of IFRS 16-Leases effective April 1, 2019.
• The operating margins declined by ~320 bps YoY to 20.5%. Consolidated PAT grew by 5% YoY to Rs 37,980 mn

Management Commentary

• The management has raised the revenue growth guidance for FY20E from 7.5%-9.5% to 8.5%-10% YoY. It maintained operating margins guidance of 21%-23% for FY20 v/s 22.8% in FY19.
• INFY has till date bought back shares worth Rs 59.34 bn of its previously announced share buyback of Rs 82.60 bn. 
• INFY revised Capital Allocation Policy of the Company after taking into consideration the strategic and operational cash requirements. It increased the pay-out from 70% of Free Cash Flow (FCF) to ~85% of FCF cumulatively for over a 5-year period through a combination of semi-annual dividends/share buyback / special dividends.

Consensus Estimate (Source: market screener website)

• The closing price of INFY was Rs 727/- on 15-Jul-19. It traded at 19.0x / 17.0x the consensus EPS for FY 20E / FY 21E EPS of Rs 38.2 / 42.7 respectively. 
• Consensus target price of Rs 792/- implies a PE of 18.5x on FY21E EPS of Rs 42.7.

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