Escorts Securities Ltd.

Sept. 28, 2012

Tata Consultancy Services Limited Q213 Earnings Estimate

BUY
CMP (INR)

1,296

Target (INR)

1,451

Nominal Value (INR)

BSE Sensex

18,763

Market Cap (Billion)

INR 2,536 ($47.86)

52 Wk High/Low (Rs.)

1439 / 1015

Avg Daily Vol

504,509

Shareholding Pattern (%)

30-Jun-12

Promoters

73.98

MFs, DIIs, Banks, Insurance

6.71
14.63

FIIs
Indian Public

4.24

NRIs/OCBs/Custodians/ Others

0.44

Stock Performance
1m

3m

6m

Absolute

-4%

3%

11%

Relative

-10%

-7%

2%

150

100

50

TCS

Sensex

0
Sep-11

Tata Consultancy Services Limited (TCS) is the leading company in India, which
provides IT services, business solutions and outsourcing services to global
companies. TCS offers a consulting led, integrated portfolio of IT, BPO,
infrastructure, engineering and assurances services.

Nov-11

Feb-12

Apr-12

Jun-12

Aug-12

Q213 Earning Estimate Stable quarter, with slight margin erosion

Sales Growth We expect sales from operations to grow to 34.74% on YoY basis
and 5.43% on QoQ to INR 15,676 crore. Sales would remain online with market
expectation, as no new disruption happen with its delivery. Thus we believe that the
company will grow as expected, which is more than NASSCOM estimate, however,
we does not foresee any major development before US elections. We expect BFSI
and retail segment to grow above 5% on QoQ, while manufacturing, telecom and
other to grow marginally, whereas telecom can surprises in the upside growth in the
coming quarter.
Profitability EBITDA is expected to grow by 34.49% on YoY basis, while 5.26%
on QoQ basis. Net profit is expected to grow by 2.30% on QoQ basis and 47.6% on
YoY basis to INR 3,435 crore.
Margins Analysis Gross margin is expected to be marginally down by 4bps. As
per management, the pricing is expected to remain stable, but still, due to rise on
new Trainees, higher onsite expenses, and on new deals intake at lower margins
level, the net profit margin would be down by around 67bps. The higher drop with
the net margins is also on account of higher tax expenses estimate.
FY13 earnings estimate
nd
We expect that, 2 half of the FY13 to be better than the first half. We expect that
the global economy to further improve from the start of FY14 onwards. And with US
election done, new investment and faster clients decisions would start flowing from
the Q4FY13 onwards. Thus, in FY13, we are estimating the sales to grow to
30.96% to INR 64,032 crore, with net profit growing by 35% to INR 14,204 crore.
We expect margins to improve by around 50bps from Q313 onwards, on better
pricing on its BPO and IT services.
TCS is trading at a PER of 17.86x on FY13x earnings estimate, which seems to be
available at a cheaper valuation than its discounted fair value. TCS for the last 7
years (FY05 FY12), has grown at a CAGR of 25.91% on sales and CAGR of
26.98% on its net profit. Thus given its past track record on performance, and with
the kind of management teams, capacity build up and new investment in new
sectors and geographies done recently, we feel, the stock should be trading at PER
of atleast 20X on its FY13E earnings. Thus, we are recommending a BUY around
the CMP level for a target price of INR 1,451, on a 1 year holding period. Our target
price is on the basis of 20x PER on FY13x earnings.

Particulars (Crore)

Q2'13E

Q1'13

Q2'12

FY11

FY12

FY13E

Revenues

15,676

14,869

11,633

37,325

48,894

64,032

QoQ growth

5.43%

12.14%

7.75%

YoY growth

34.74%

37.71%

25.27%

24.30%

31.00%

30.96%

Cost of Sales

9,070

8,597

6,718

21,092

27,719

36,899

Gross profit

6,605

6,272

4,915

16,233

21,175

27,133

42.14%

42.18%

42.25%

43.49%

43.31%

42.37%

4,551

4,324

3,384

11,178

14,435

18,719

29.03%

29.08%

29.09%

29.95%

29.52%

29.23%
29.68%

Margin %
EBITDA
Margin %
QoQ growth

5.26%

10.18%

11.58%

YoY growth

34.49%

142.57%

21.90%

28.57%

29.14%

3,435

3,358

2,328

9,190

10,523

14,204

21.91%

22.58%

20.01%

24.62%

21.52%

22.18%

QoQ

2.30%

15.02%

7.18%

YoY

47.6%

54.6%

5.8%

29.6%

14.5%

35.0%

EPS (INR)

17.55

17.16

11.89

46.95

53.77

27.60

24.10

72.57
17.86

Net profit
Net Margin

PER(x)

Escorts Securities Ltd.

(COME, GROW WITH US)

Institutional Research

TCS Ltd.

Suranjoy - Manager-Institutional Relationship

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