TCS

30 May

A three-dimensional approach to 5G -TCS

Update on the Indian Equity Market:

On Monday, NIFTY closed in the green at 16,661 (+1.9%), led by M&M (+5.0%), TITAN (+4.9%), and INFY (+4.6%). KOTAKBANK (-2.0%), JSWSTEEL (-1.9%), and SUNPHARMA (-1.7%) were few of the laggards. Among the sectoral indices, CONSUMER DURABLES (+4.2%), REALTY (+4.1%), and IT (+3.9%) led the gainers, and there were no losers for the day.

Excerpts of an interview with Mr. N Ganapathy Subramanium, Chief Operating Officer, TCS published in Business Standard on 30th May 2022:

  • The annual report outlines the company’s ambition to reach USD 50bn revenue. Currently, TCS has 600,000 employees with revenues of USD 25bn. It doesn’t want to double the employees to double its revenues, so there is an element of nonlinearity there. The company doesn’t just want to work with clients, it wants a play in the ecosystem.
  • TCS wants to create systems that give real-time information.
  • Metaverse is currently a hype cycle. If it succeeds, the COO would like TCS to be present in that segment as well.
  • TCS will continue to enter unchartered territories. Currently, it is not present in B2B businesses, it may get into consumer businesses in the future.
  • BFSI, being one of the early adopters of technology consumes the largest amount of technology talent and resources. Almost every aspect of banking is changing and demand for transformative solutions in the banking space is at an all-time high.
  • TCS is the largest provider of technology services and has a solid play in the BFSI segment. About 30-35 percent of the world’s population uses the company’s product. In insurance as well, it has built a solid platform, with about 20-25mn policies administered across major markets.
  • Many Indian insurance companies use the TCS platform for processing policies and claims, in both life and non-life.
  • Discussions with clients don’t seem to suggest the peak is over for the IT sector.
  • For FY22, the total contract value (TCV) stood at USD 11.3bn. The quarterly run rate is USD 8-9bn. A year back, it was USD 6-7bn. The company’s focus is on getting the deals, irrespective of the size.
  • TCS is supporting several customers in rolling out the 5G network. Its approach to 5G is three-dimensional. First act as a systems integrator to integrate, deploy the network, and operate it for telco customers. Second how to help enterprises build a private 5G network within their facilities. Third, leverage the two network layers to build vertical applications on top of it. The company’s strength is in software, and with more networks getting softwarised TCS will have a bigger role to play beyond applications.

Asset Multiplier Comments

  • Post FY22 earnings, the management alluded that tech spending continues to remain strong and believes it would be the last to be cut despite an economic downturn. The company is focusing on tech integration led hyperscaler deals in its Industry 4.0 initaitive helping it win more transformational deals.
  • Deal wins across segments, reduction in subcontractor costs and better realisation would likely drive revenue growth in the medium term, while employee costs and attrition are likely to be a drag.

Consensus Estimates: (Source: market screener and investing.com website)

  • The closing price of TCS was ₹ 3,380/- as of 30-May-2022.  It traded at 29x/ 25x/ 23x the consensus earnings estimate of ₹ 118/ 133/ 146/- for FY23E/FY24E/FY25E respectively.
  • The consensus target price of ₹ 3,939/- implies a P/E Multiple of 27x on the FY25E EPS estimate of ₹ 146/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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12 Apr

Aspiring for double-digit revenue growth in FY23 – TCS

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 17,530 (-0.8 %) as it closed near the day’s opening level of 17,585. Among the sectoral indices, PRIVATE BANK (+0.5%), and BANK (+0.4%) were the gainers, whereas REALTY (-2.8%), METAL (-2.7%), and OIL&GAS (-2.4%) led the losers. Among the stocks, AXISBANK (+1.6%), KOTAKBANK (+1.2%), and POWERGRID (+0.8%) led the gainers, while HINDALCO (-5.8%), COALINDIA (-5.0%), and GRASIM (-3.7%) led the losers.

Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, Mr. Samir Seksaria, CFO, and Mr. N Ganapathy Subramaniam, COO & ED of Tata Consultancy Services (TCS) with CNBC TV18 on the 12th April 2022:

  • The company’s deal wins of USD 11.3 bn comprise large deals and even spread deals of all sizes. The regular pipeline is strong, with the third-largest deal worth around USD 250mn. The management is focused to keep on moving up the median level of the deals.
  • The company’s average quarterly deal wins used to be in the range of USD 6-7 bn, and are now between the USD 8-9 bn range. The management feels that this number will keep on increasing due to the demand visibility that it can see.
  • The company believes that its employee cost is stabilizing. The attrition rate is reaching a higher level and in the next 6-8 months it will stabilize. In the last 2.5 years, the company has invested heavily in building its talent pool and upskilling it. The management believes that it will help the company in improving its operational performance to the 26-28% margins range.
  • The management believes that the pricing and realization will be key levers for improving the company’s margins. The better realization will be achieved by 3 things- 1) Incremental pricing for renewals and new deals, 2) Better realization through a better portfolio mix, and 3) Improving realization per FTE (full-time equivalent employee) basis.
  • The company aspires to grow its revenues with a double-digit growth rate in FY23. The management believes that the industry is still far away from the peak of the digital investment cycle. They believe that they are still in the early to mid-stage of their clients’ migration to hyper scaler space and the leveraging of native technologies.
  • Speaking of its big-size deal wins, the company is looking toward cloud transformation deals as the biggest opportunity in almost every industry. The company used technologies like metaverse and augmented reality features for one of its telecom retail clients in North America so that its customers could feel the retail stores and products. All of this comes at a decent price point for the company due to the technologies that it employs

Asset Multiplier Comments

  • TCS’ size and capabilities have positioned it well to benefit from the technological upcycle, cloud migration, and digital transformation that the IT industry has entered into.
  • We also believe that the continued strong deal wins with a suitable portfolio mix will help the management retain its double-digit revenue growth even in FY23.

Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 3,686/- as of 12-Apr-2022. It traded at 31x/28x the consensus earnings estimate of ₹ 118/134 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,041/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 134/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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11 Oct

This quarter is all about consolidation of growth momentum – TCS

Update on the Indian Equity Market:

On Monday, NIFTY ended higher at 17,946 (+0.3%) as it closed near the intraday high level of 18,041. All the sectoral indices were gainers, led by AUTO (+3%), REALTY (+1.7%), and METAL (+1.5%) except IT which was down by (-3.3%). Among the stocks, TATAMOTORS (+9.1%), COALINDIA (+4.4%), and MARUTI (+3.4%) led the gainers while TCS (-6.3%), TECHM (-2.7%), and INFY (-1.8%) led the losers. 

Excerpts of an interview with Mr. Rajesh Gopinathan, CEO and MD, of TCS  with Business Standard on 11th October 2021:

  • TCS believes that this is one of the best quarters they have had. The growth was broad-based. From a deal win standpoint, every vertical has come back strongly.
  • Large verticals like retail and manufacturing have all done well.
  • Growth has been driven by three aspects: increased outsourcing, building a digital core, and growth and transformation agenda of clients.
  • This growth is evident in customer metrics as the numbers are above pre-pandemic baselines and each layer of the customer pyramid has grown.
  • This growth momentum is expected to continue as the demand is strong but there could be seasonality of demand and operations which are specific to industries and regions. How this seasonality pans out remains to be seen.
  • Two years ago, TCS experimented by taking in 32,000-35,000 freshers in the first two quarters and this model proved to be successful. They plan to do this in FY22 as well, as their approach to providing fresher training is modified.
  • Fresher training is no longer looked at as a standalone activity. Rather, it is deeply integrated into business units themselves. The training is more aligned to where demand is and the focus of the curriculum is in tune with the business units.
  • By participating in G&T (Growth and Transformation) projects, TCS has been trying to be aware of which part of the customer agenda they were partnering with. Creating awareness and articulating what TCS does, both internally and externally are the key part.
  • What matters is that TCS is relevant to its customer base. They have over 1,000 customers and 98% of its business is repeat business’s relevance to customers should continue and increase.

Asset Multiplier Comments

  • TCS like the entirety of the IT Industry has been facing the brunt of attrition-related margin pressures. Strong brand building and employee satisfaction have helped it keep attrition at an industry low.
  • We expect these input pressures to sustain over the next 2-3 quarters post which TCS’ long-term growth levers would kick in and help the company venture into the next phase of growth.

 Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 3,686/- as of 11-Oct-2021. It traded at 38x/33x/30x the consensus earnings per share estimate of ₹ 105/119/132 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,978/- implies a PE multiple of 30x on FY24E EPS of ₹/132-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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15 Apr

Looking to maintain double-digit growth over FY23-24E – TCS

Update on the Indian Equity Market:

After a mid-week break, markets continued to remain volatile as Nifty started the day lower but managed to close 0.5% higher at 14,581. Within the index, TCS (4.0%), WIPRO (3.5%) and CIPLA (3.3%) charged the index higher while GRASIM (-3.1%), EICHERMOT (-3.0%) and MARUTI (-2.5%) led the losers. Among the sectoral indices, PHARMA (1.4%), METAL (1.4%), and FIN SERVICES (1.2%) were some of the winners while PSU BANK (-1.3%), AUTO (-1.3%), and MEDIA (-0.7%) closed in the red. 

Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, NG Subramaniyam, COO, V Ramakrishnan, CFO, and Milind Lakkad, Executive VP of Tata Consultancy Ltd (TCS) with CNBC -TV18 dated 13th April 2021:

  • During the Mar-21 quarter, almost all the markets and verticals reported sequential growth. The hospitality and travel areas are still under stress. In response, the company is coming up with new ways of investments and then preparing for the post-pandemic era. 
  • The technology shift is moving as per the expected trajectory. The industry is witnessing overall growth in the transformation agenda.
  • With the deal momentum of US$ 9.2bn, a mixture of smaller and big deals, and an improving economic outlook, the company has set the target of maintaining double-digit growth in revenues over FY23-24E.
  • As per the full-year plans for TCS, the company completed 19,400 hires. The number includes hiring for FY22E as well. Additionally, the company has made investments for taking business from consulting.
  • The margin profile for large deals is eroding due to competition. From here on, innovative solutions will drive the sustainability of margins.
  • The company expects a positive trend in both emerging and developed markets. There are lots of opportunities in manufacturing, telecom, retail, and media.

Asset Multiplier Comments:

  • Backed by deal wins in both small and big pockets and continued momentum in cloud and data, the company looks set to achieve its target of double-digit growth over FY23-24E.
  • Record employee addition of 19,400 hirings along with record low attrition of 7.2% strengthens the growth opportunity prospects over the next two years. 

Consensus Estimates (Source: market screener website):

  • The closing price of TCS was ₹ 3223/- as of 15-April-2021.  It traded at 30x/ 27x the consensus EPS estimate of ₹ 108/ 119 for FY22E/23E respectively.
  • The consensus price target is ₹ 3,401/- which trades at 29x the EPS estimate for FY23E of ₹ 119/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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12 Oct

TCS Management on COVID trigger, a multi-year transformation

Update on the Indian Equity Market:
On Friday, NIFTY closed flat at 11,914 (+0.7%). Top gainers in NIFTY50 were Wipro (+4.4%), ICICI bank (+4.1%), and Axis bank (+3.7%). The top losers were Grasim (-2.6%), Hindalco (-2.5%), and UPL (-2.3%). Top sectoral gainers were PSU BANK (+3.1%), BANK (+2.8%), and PVT BANK (+2.6%) and sectoral losers were REALTY (-1.6%), PHARMA (-1.3%), and MEDIA (-0.9%).

Excerpts of an interview with Mr. Rajesh Gopinathan, CEO & MD, and Mr. NG Subramaniam, COO, TCS with ET now dated 8th October 2020:
● They fundamentally believe that technology will be a solution and therefore there will be even more relevance to their services to their customers.
● They were confident about their ability to switch to the new operating model and that was what was underlying the commentary that they had given earlier on that in about six months’ time or the end of Q3, they should be looking at coming back to parity and from a cost structure and margin perspective, by the end of Q4 they should be looking at parity.
● What has changed during the course of the last six months is that they have been able to execute on the operational resiliency program that NGS laid out; second, they have been able to participate significantly in this technology-led transformation that is at the heart of their customer’s response to the COVID crisis.
● First-quarter was about their internal resiliency. The second quarter has been about participating in the customer side. Now they are a lot more confident because both legs have been executed and it is with that confidence that they are giving their comments.
● What they are seeing is an urgency to accelerate the digital transformation on all fronts. Three priorities – the first one is the resiliency of your IT landscape. The second is their own internal employee experience, can they continue to operate remotely and safely and then contribute even more productively? The third being customer experience, how can they continue to be wherever their customers want to do business and how their experience can be touchless, contactless while providing all the accessibility options for different segments if possible.
● If you put these three things together, then the migration to the cloud becomes very important. The intent is to move to a hyper-scale platform with agility, resilience, adaptability, flexibility, and all those things.
● In the current context, they provide significant value and there is clearly an urgency to say that look I am going to move to that kind of an architecture which is much more modern, much more futuristic, which means that when you go an invest in this and it is not going to be a simple hop on and hop off once you move in there.
● It is going to be irreversible and you have to continue with that journey for three to five years where you will pretty much become a native and will embed your businesses into that technology by which you will extend your organizational capabilities with the ecosystem concept and bring in a lot more credibility to the business you do business with your customers. That is the multi-year transformation that they are seeing.
● In a technology, anything more than three to five is very difficult to call out but they are very confident about three years because it is something they have visibility to.
● Within those three to five years, there are going to be a lot more new ways of doing business, of reaching out to customers who are going to emerge.
● COVID has provided a business trigger and they are not sure whether in the absence of COVID, this adoption would have been at the same speed. It is unfortunate that the trigger happened in such a negative way but the trigger for the shift has kicked in. That is the way to understand what is going on.
● In the last three months, they have upped their quotient on delivery guidelines for delivering through secured, borderless workspaces.
● We are seeing that people love the flexibility that they have. While talking to one of the employees the other day, he was saying that this conference room crap has completely gone away and the collaboration meetings are a lot more democratic and they are able to decide and deliver things faster.
● They are able to incrementally innovate, multiple elements, and levers of productivity which is there. They are completely focussed on making sure that it is working superbly and people are able to deliver productivity with a lot of pride.
● Their operating philosophy has been to maintain stable margins. They are very systemic about trying to manage within that range which they think is beneficial to all stakeholders; customers, their employees, and their investors.
● Short-term volatility will have its own impact and it is more of a philosophical thing. There is no right margin to operate at, it is relative competitiveness and the aspiration that you have. It is a fair and achievable and sustainable band and that continues to be their guiding principle.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of TCS was ₹ 2,811/- as of 9th October 2020. It traded at 33x/ 28x/ 25x the consensus earnings estimate of ₹ 85.1/ 101.0/ 113.0 for FY21E/22E/23E respectively.
● The consensus price target of TCS is ₹ 2,802/- which trades at 25x the earnings estimate for FY23E of ₹ 113/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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14 Jul

With growth, margins will also improve – TCS

Update on the Indian Equity Market:

On Monday, NIFTY closed at 10,815 (+0.4%). Top gainers in NIFTY50 were Tech M (+5.5%), Hindalco (+3.8%), and HCLT (+3.7%). The top losers were Power grid (-2.2%), Bajaj Finance (-2.1%), and HDFC Bank (-1.9%). Top sectoral gainers were IT (+1.7%), METAL (+1.5%), and FMCG (+1.3%) and sectoral losers were REALTY (-1.6%), PSU BANK (-1.6%), and FIN SERVICES (-1.3%).

Excerpts of an interview with V Ramakrishnan, CFO, TCS and Milind Lakkad, CHRO, TCS with ET now dated 10th July 2020:

  • 95% of our people are working from home and only 1% come to work for various reasons. It has been a change for everybody. It hasn’t been an easy cakewalk but they have done very different things.
  • Associate health and well being has been a paramount thing for them and has been a key factor in decision making.
  • They do everything while continuing to take care of associates’ health and ensure that they continue to be a happy organisation.
  • The aspiration of 26-28% margin is very much intact. Of course this pandemic has changed certain dynamics. So, the timing of when they will get back, is dependent on the recovery. They are confident of recovery in the coming quarters.
  • Recovery will be very segment and specific country driven, but they expect that to happen across many of the sectors.
  • Along with growth, obviously the margins will also be improving because in the current quarter, the reduction in the margins is directly related to the contraction in the demand and in the revenue.
  • While they were able to get back almost 300 bps outside of anything to do with employee cost but still they had a dip of about5% that is directly related to the drop in revenue so with improvement in the recovery, they will also see the improvement in margins.
  • The investment is driven by what is required to make sure that they are abreast of what is happening on the technology front to make sure that TCS people are equipped and in terms of what they can showcase to their So the investments have been going on and the balance sheet is strong.
  • They will continue to invest in research and innovation, in building capabilities at scale among the employees and also in labs and customer experience areas.
  • Going forward, they will continue to get all 40,000 offers they made in the campuses in India and that will go through from this mid-July though the year. The engagement with the fresher recruits and everything else is on very actively for the last three months and they will honour all of those offers.
  • They have to be conscious that some of the sectors have been badly affected and there is an expectation from some of the customers and some of the sectors for support. They have been very supportive and we have looked at it in the contextually and depending on the relationship, it is a very mutually beneficial relationship.
  • Their dividend or return policy has been 80% to 100% of free cash flow. So, there is no departure from that policy. In the last couple of years, they have been very close to 100% or even slightly higher. They will stay within that range.
  • Customers’ ability and willingness to adapt to the Work from home model and to be able to connect people from wherever they are. So, the location independence of this model will change the dynamics for everybody.
  • They always thought that the most important meetings have to happen in person and that is not the case anymore. They just come together, discuss and have a chat and then the two CEOs connect in a jiffy. Those are big things that will help establish a deeper relationship with customers going forward.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of TCS was ₹ 2,222/- as of 13-July-2020.  It traded at 27x/ 23x the consensus earnings estimate of ₹ 82.6/ 95.6 for FY21E/22E respectively.
  • The consensus price target of TCS is ₹ 2,088/- which trades at 22x the earnings estimate for FY22E of ₹6/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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21 Apr

Post pandemic, recovery to be V-shaped – Mr N Ganapathy Subramaniam, COO – TCS

Update on the Indian Equity Market:

 

On Monday, Nifty closed unchangedat 9,262. Within NIFTY50, TATAMOTORS (+4.2%), SUNPHARMA (+3.9%) and HDFCBANK (+3.6%) were the top gainers, while HINDALCO (-5.6%), JSWSTEEL (-5.6%) and AXISBANK (-5.4%) were the top losers. Among the sectoral indices,PSU BANK (+4.2%), IT (+1.6%) and REALTY (+0.6%) gained the most. METAL (-3.3%), FMCG (-2.1%) and AUTO (-1.4%) were the top losers.

 

Post pandemic, recovery to be V-shaped – Mr N Ganapathy Subramaniam, COO – TCS

 

Excerpts of an interview with Mr N Ganapathy Subramaniam, COO- TCS published in Business Standard dated 20th April 2020:

  • Back in December, TCS dealt quickly in China. That led to none of their employees getting affected by covid-19.
  • TCS has formed a committee that meets every day and coordinates operations globally. More than 90% of the workforce is working from home (WFH). As long as the work is getting done, TCS is not in a hurry to get employees back in the office space.
  • In March, 2/3rd of the business impact was due to supply side issues. This was due to employees having to WFH and approvals had to be obtained from clients for the same.
  • In 1QFY21E, 80% of the business impact will come from demand side. There are various discussions happening with clients. Some clients are asking how TCS can help them in their business in current stressed situation, some clients are asking for pricing discounts, while some are asking to halt projects. On the other hand there are also situations where clients are asking to accelerate projects and finish ahead of time. TCS has also got certain additional work from clients where their other vendors could not do it, and also in cases to help moving operations to WFH.
  • TCS has seen some suspension of projects in certain pockets, but there have been no cancellations.
  • It is difficult to assess the current situation. But when the pandemic is contained and economic activity resumes, all sectors will rebound simultaneously. Once the pandemic is over, the recovery will be swift and V-shaped. Given the deal pipeline and demand scenario, management is optimistic of reaching the 3QFY20 revenue level of ₹ 390 bn in 3QFY21E.
  • TCS has various levers that it will implement to undertake cost optimization. First and the biggest available lever is how a project can be executed within budget and time. Second is reduction in employee costs on account of no salary hikes and reduction in travel costs due to WFH. Third, marketing costs will come down with more digital marketing. The other cost efficiencies can be achieved by controlling utility costs and contracting costs.
  • TCS is open to look at M&A opportunities in these times as according to the management, these are good times to buy. TCS had its biggest acquisition (captive BPO of Citigroup) during the Global financial crisis.

Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 1,819/- as of 20-April- It traded at 20.9x/ 21.3x/ 19.1x the consensus EPS estimate of ₹ 86.9/ 85.5/ 95.4 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 1,829/- implies a PE multiple of 19.2x on FY22E EPS of ₹ 95.4.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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22 Jan

BFSI and retail will drive growth in the medium and long term: TCS

Update on the Indian Equity Market:

The markets continued the downward trajectory on Tuesday with the Nifty falling 55 points to close at 12,170. Monday’s fall was on the back of a combination of selling pressure from the DII and muted participation by FIIs. Within the index, some of the stock movements were a reaction to the quarterly results declared by the company. Within the sectoral indices, only Media (2.2%) closed the day in green while REALTY (-1.5%), AUTO (-1.4%) and METAL (-1.4%) led the laggards. Within the index stocks, INFRATEL (8.6%), ZEEL (4.5%) and BPCL (1.4%) were the top gainers whereas TATASTEEL (-3.3%), M&M (-2.9%) and TATAMOTORS (-2.4%) were the top stocks that ended in the negative.

Excerpts from an interview with Mr Rajesh Gopinathan, CEO – TCS. The interview aired on CNBC-TV18 on 20th January 2020.

  • TCS declared 3QFY20 results with a YoY increase of 0.2% in consolidated net profit at ₹ 81,180 mn. In this interview, he discussed the third quarter performance and the outlook in detail.
  • He is hopeful of sustaining margins at around 25 percent going forward on back of their strong delivery model. The company has been investing continuously in the organic talent building capability and over time, the investment into the group of 5-12 year old people has been significant. This has been going for on for last five- six years. He believes that the pool is now very strong and there is an opportunity to expand the base.
  • The company is aspiring to achieve margins of 26%. To achieve the target, the combination of operational elements and the currency needs to be supportive. Both the things came together in the 3QFY20. The currency will remain volatile. However, he believes that the way things are moving, probably that will also be supportive of the medium-term.
  • He said that the medium to long term growth trends will be based on BFSI and retail because the rest of the verticals are firing all cylinders. They are all well into the double digit space. In BFSI & retail, the company is observing very diverse performance across geographies and sub-segments. The weakness can be isolated down to the large banks and the large retailers in US and UK. The company is not losing wallet share in these geographies but it is the sub-segment that forms large part of the base business.
  • In terms of addition to headcount, he said that it is 23,500 this year, same as last year. The hiring was front-loaded during the current year.
  • In the retail space, more traditional retailers seem to be finding their groove. In the US, the players like Best Buy and Walmart are doing significantly better and standing up to the pure online players very well. He believes that the company will revert back to double digit growth in the retail segment.

Consensus Estimate (Source: market screener website)

  • The closing price of TCS ₹ 2,170/- as of 21-January-2020. It traded at 25x / 23x / 21x the consensus EPS for FY20E / 21E / 22E of ₹ 88.0/ 96.1/ 104.0 respectively.
  • Consensus target price of TCS ₹ 2,108/- implies a PE multiple of 20x on FY22E EPS of ₹ 104.0.
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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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