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Tata Consultancy Services Limited

Microsec Research 25 June 2011

Analyst: [email protected]

Table of Contents:

S. No. Contents Page No.

1. Investment Case…………………………………………………………………………………………………………………… 03 - 03

2. Company Background…………………………………………………………………………………………………………… 04 - 04

3. Business Segments………………………………………………………………………………………………………………… 05 - 06

4. Industry Overview………………………………………………………………………………………………………………… 07 - 09

5. Investment Thesis………………………………………………………………………………………………………………… 10 - 14

6. Peer Group…………………………………………………………………………………………………………………………… 15 - 16

7. Key Management Personnel…………………………………………………………………………………………………… 17 - 17

8. Valuation……………………………………………………………………………………………………………………………… 18 - 18

9. PE Bands……………………………………………………………………………………………………………………………… 18 - 18

10. Key Risks……………………………………………………………………………………………………………………………… 19 - 19

11. Financials…………………………………………………………………………………………………………………………… 20 - 20

12. Disclaimer…………………………………………………………………………………………………………………………… 23 - 23

‐ 3 ‐




We rate Tata Consultancy Services Limited (TCS) a ‘BUY’. Our rating underpins

the company’s leading position in the Indian IT space, strong growth in

business volumes, GNDMTM for better catering of customers’ needs, non linear

growth drivers, strong R&D, and its history of rewarding shareholders.

However, a dull European business environment and currency headwinds

impede our optimism a bit.

Investment Case

TCS’ large size enables it to provide one stop solutions for entire set of

customer needs. This factor puts the company in a better position while

negotiating for new deals and helps it to retain business from the existing

clients.

Under GNDMTM model, TCS established delivery centers at different

geographical locations across the globe. The model enables the company to

collaborate on projects and leverage the asset base of different locations.

TCS is also focusing on non linear levers to drive its future growth, which

include – Financial Solutions, Platform based BPO, and iON. These solutions,

with strong market response may help the company keep its growth levers

intact in the upcoming quarters.

TCS’ R&D initiatives are focused on staying competitive in the market and

remain proactive to changes in the IT space, the company possesses

wealthy IP assets with 68 patents granted across various domains.

In addition, TCS’ management continues to reward shareholders with

regular dividend payouts, which add on to their returns periodically. The

company has distributed ~48% of its cash generated since FY2005 as

dividends.

TCS – Financials at a glance (all data in ` Crores unless specified)

TCS – Size does Matter

BUY Sector- Information Technology

Current Market Price (`) 1,136.20

Target Price (`) 1,388.70

Annualized Upside 12.7%

52 Week High / Low (`) 1,247.00 / 725.50

Market Capitalization (In ` Crs) 222,379.45

Market Data & Target Price

BSE Code 532540

NSE Code TCS

Bloomberg Ticker TCS IS Equity

Face Value (`) 1.00

FY2011 EPS (`) 46.32

Current P/E 25.9x

Average P/E 24.2x

Beta vs Sensex 0.91

PEG Ratio 1.14

Average Daily Volmes 193,275

STOCK SCAN

-25

0

25

50

75

24-Jun-10 23-Sep-10 23-Dec-10 24-Mar-11 23-Jun-11

Retu

rn (

%)

TCS SENSEX

‐ 4 ‐




Company Background

TCS is one of the most integral parts of ~$98.7 Bn Tata group. Foundation of it was rooted in formation

of a division of Tata Sons in 1968. Over the four decades of its formation, the division assisted in

shaping the Indian IT space. The division, which got its first international client in 1971, crossed `10 Bn

revenues mark in late nineties. TCS was incorporated as RR Donnelley (India) Private Limited in

January 1995, which was wholly owned by RR Donnelley and Sons Company through its Mauritius

subsidiary. Tata Sons acquired the entire stake of RR Donnelley and Sons Company in RR Donnelley

(India) Private Limited during June 2000. With this, the latter became a wholly owned subsidiary of

Tata Sons. The company’s name was subsequently changed to Orchid Print Media Limited in March

2001 and finally it became Tata Consultancy Services Limited (TCS) in December 2002. The company’s

subsequent progress is depicted briefly in the graph below:

From just a business division of its parent Tata Sons, TCS emerged as the leading software exporter in

the Indian IT industry. The company’s top line touched $8.2 Bn in FY2011 while it reported Net profits

of more than $1.9 Bn during the year. In addition, TCS is amongst one of the largest employers of the

country with employee base of 198,614 at the end of FY2011. The company is present across the

globe with 145 offices in 42 countries. Moreover, TCS had 106 delivery centers in 20 countries at the

end of the year. In ` terms the company’s top line stood at `37,324.51 Crores whereas its bottom line

remained at `9,068.04 Crores. TCS earned more than 90% of total revenues from the global markets

during the year.

Source: Company Data, Microsec Research

‐ 5 ‐




Business Segments

TCS segregates its revenues on the basis of geographies it caters to. In addition, the company divides

the top line based on revenues from different industry verticals and according to Service Offerings.

On a geographical basis, TCS primarily reports four segments – US, Europe, India, and Rest of the

World (RoW). While the US continues to account for a large chunk of the company’s top line, business

from Europe and RoW are gaining momentum. As a result, the share of these geographies, on a y-o-y

basis, increased in TCS’ top line whereas contribution by US witnessed a decline in Q4 FY2011. Growth

in revenues from India remained in line with the company’s overall top line expansion. Consequently,

the share of country in TCS’ top line declined just 10 basis points (bps) y-o-y to 8.80% in Q4 FY2011.

The following exhibit reflects the geographical revenue break up of TCS in Q4 FY2011 and Q4 FY2010.

The industry verticals, which TCS caters to, are broadly divided into 10 heads. These heads are –

Banking, Financial Services and Insurance (BFSI), Manufacturing, Retail and Distribution, Hi-Tech, Life

Sciences and Health Care, Transportation, Energy and Utilities, Media and Entertainment, and Others.

BFSI continued to account for a large share of the company’s top line pie. However, its share has

declined, over the last year, in Q4 FY2011. Nevertheless, new areas such as – Transportation, Life

Sciences and Health Care, and Media and Entertainment registered an enhanced revenue share, on a

y-o-y basis, in Q4 FY2011. This is shown in the exhibit below:



‐ 6 ‐




As per Service Offering segmentation, TCS report its top line in five segments – IT Solution and

Services, Engineering and Industrial Services, Infrastructure Services, Global Consulting, Asset

Leverage Solutions, and Business Process Outsourcing. IT Solution and Services, further divided into

Application Development and Maintenance, Business Intelligence, Enterprise Solutions, and Assurance

Services, continues to remain the dominant revenue contributor in Q4 FY2011. Among these services,

Application Development and Maintenance account for the highest share. The company’s revenue

spread across the Service Offerings is depicted below:

Trend of change in geographical mix is expected to continue in the upcoming quarters as well. While

share of matured economies such as Europe and US is expected to decline gradually, India and RoW

may witness incremental share in top line. Among the Industry verticals, Health Care, Media and

Entertainment, and Life Sciences may beat the company’s average growth. While IT Solution and

Services likely to remain key contributor amid the services, Infrastructure Services are expected to

gain momentum. As a result, share of these verticals in TCS’ top line is expected to increase in the

medium term.


‐ 7 ‐




Industry Overview

Global Scenario

According to National Association of Software and Services Companies (NASSCOM) estimates, global

spending on technology and related products and services augmented 4.0% y-o-y to $1.6 Tn in 2010.

IT Services spend increased 1.4% y-o-y to $574.0 Bn while BPO spend jumped 3.9% to $158.0 Bn

during the year. Among the geographies America remained on top followed by Europe and Asia Pacific

(APAC) Region. A brief overview of the same is depicted in the graph below:

Global IT Services Spend – Geographical Break up

Global BPO Spend – Geographical Break up

The global industry trends remained positive in 2010 and expected to stay upbeat in the upcoming

quarters as well. Players in some of the favorable IT destinations such as India are expected to

significantly benefit from the same. The country’s dominance is likely to continue with its expertise

and ability to offer quality services in the IT and ITES domains.

Source: Nasscom, Microsec Research


‐ 8 ‐




Indian IT Industry

The Indian IT industry remained a key contributor to India’s overall economic development. According

to NASSCOM IT BPO sector strategic review 2011, Indian IT sector is estimated to clock revenues of

$88.1 Bn in FY2011. While a major part of the same is expected to continue coming from overseas

software markets, hardware and domestic markets also accounts for a sizable portion of industry.

Of total revenues of $88.1 Bn, $12 Bn came from Hardware segment while IT Software and Services

accounted for the remaining $76.1 Bn. Moreover, exports contributed for ~78% of the total revenues

of IT Software and Services segment. Aggregate direct employment from the IT space is estimated to

reach 2.5 Mn in FY2011. In addition, the industry created ~8.3 Mn indirect jobs as per NASSCOM

estimates. The sector’s share in total Indian exports grew from just 4% in FY1998 to 26% in FY2011.

Furthermore, the industry’s revenues as a percentage of GDP increased from 1.2% to an estimated

6.4% during FY1998-2011 period.

Among geographies, US is likely to remain the largest contributor whereas Banking Financial Services

and Insurance (BFSI) is estimated to be the largest vertical in the country’s export pie. Additionally, IT

Services segment represented 57% of total exports followed by Business Process Outsourcing (BPO),

and Engineering Design and Products Development segment. We expect this analogy to remain intact

in medium term as well.

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Indian IT Sector Software Revenues

‐ 9 ‐




Outlook

In its Strategic Review 2011, NASSCOM predicted the global IT Services spend to increase to $684.0 Bn

by 2014 from current levels of $574.0 Bn. BPO spending is also expected to grow to $201.5 Bn by

2014. Spending on both IT Offshoring and outsourcing is also likely to support the growth in overall

spending in IT services. The following charts show the predicted growth in the IT Services and BPO

spend over 2010P-2014E periods.

Among the concerns over visa issues and adverse geopolitical environment in Europe, a short lived

slow down may be witnessed in the industry. However, the industry body expects a growth of 16-18%

in IT exports from India. According to NASSCOM president Mr. Som Mittal, “The US private sector is

doing reasonably well. So, we are not too worried. The problem is in the macro-economic scenario and

unemployment. There are also concerns over the debt situation in Europe and whether tax rates will

go up. But, by and large, the private business is doing well. So we will not revisit our forecast, unless

there is a major economic upheaval.”

Our view coincides with the industry body. We believe that a large part of overall growth of the sector

will be contributed by major Indian IT exporters. As a result, our view remains positive on the sector.

Among the top four players – TCS, Infosys Ltd (Infosys), Wipro Ltd (Wipro), and HCL Technologies Ltd

(HCL), TCS being the largest could capture the largest part of the growth.

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Investment Thesis - Size does matter

TCS is the country’s largest software exporter. The company’s top line is more than 35% higher than

its nearest competitor Infosys while its net profit is ~33% more than that of Infosys. The gap is

continuously widening between these two entities since last seven quarters. TCS is present across the

globe with 145 offices in 42 countries and 106 delivery centers in 20 countries. In addition, TCS’ broad

service offerings and integrated solutions help it to provide one stop solutions to its customers’ needs.

The company’s services portfolio consists of Application Development and Maintenance, Business

Intelligence, Enterprise Solutions, Assurance, Engineering and Industrial Services, IT Infrastructure

Services, Business Process Outsourcing, Consulting, and Asset Leverages Solutions. Through these

services, TCS captures needs of all its customers, in different verticals, spread across the globe. The

company’s diversified operations and large size helped it to bag healthy growth in business volumes

over last several quarters. In addition, these attributes coupled with TCS’ healthy balance sheet helped

it successfully sail through the headwinds such as exchange fluctuations and pricing pressures. A brief

overview of contributors in the company’s top line growth is shown in the following Exhibit.

As represented in the Exhibit above, TCS’ revenue growth in last eight quarters was largely driven by

strong volumes, even on a large base. This factor provided the company enough muscle to counter

with the sharp sequential appreciation of ` against $ during Q3 FY2010, Q4 FY2010, Q1 FY2011, and

Q3 FY2011. We believe volumes will remain the key contributor in TCS’ revenue growth in the

upcoming quarters as well. In addition, the top line growth in expected to be supported by an

improved pricing environment. We expect a more than 20% volume growth in FY2012E and FY2013E

while we expect a 1.0% and 0.5% improvement in prices during FY2012E and FY2013E respectively.

Global Network Delivery Model TM adds value

To enhance efficiency and better cater the customer needs, TCS established a unique Global Network

Delivery Model TM (GNDMTM). With the model, the company creates value for its customers by helping

them optimize their operations while pursuing new growth initiatives. Under GNDMTM TCS delivers

services to clients through its services centers spread across India, China, Europe, North America, and

Latin America. The following Exhibit depicts TCS’ solution centers across the globe.

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Pricing Volume Efforts Exchange Differences Aggregate Revenue Growth


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‐ 13 ‐




TCS launched iON, a 3rd generation Service Delivery Model, in 2011. Embraced with Cloud Computing,

it is the world’s first fully integrated IT solution for Small and Medium Businesses (SMBs). The product,

pre configured with hardware, network and software, caters to all the IT needs of SMBs without

investing significantly in the IT assets. In addition, iON, using pay-per-use business model, offers easy

scalability at an affordable cost. Furthermore, the product is supported by business, technical and

consultancy services. TCS offers iON to more than 150 SMBs and has created eco-system of over 90

Cloud Services Partners across India to provide impeccable services to clients.

Non linear services, with above average top line expansion vis-à-vis overall revenues, will provide

extra push to TCS’ performance, in our view.

Customer centric organizational structure aids to margins

In the gloomy scenario of late 2008, when global financial crisis put forth the global slowdown, it was

tough to maintain growth as well as profitability. Consequently, the corporate went on streamlining

and reorganizing their businesses to limit the impact of the same on their businesses. TCS, being on

the same side, rolled out a customer centric organizational structure in 2008:

To curb the potential loss of agility, which could have outgrown its structure

To focus on the right sectors for the future growth

The structure while focusing on customer satisfaction enabled TCS to provide agility through

reorganization of the company’s business into multiple small operating units. Each of these units

pursues growth strategies in respective domain through its own resources. This factor helps these

units to increase their business at best pace with expertise and focus. Moreover, the units, consisting

of ~3,000 – 14,000 employees, have to manage their own costs and are liable for the profitability.

TCS witnessed the effectiveness of the structure in last two years, which helped it to exercise effective

utilization of various operational levers and subsequently streamline operating costs. In addition, the

company reported healthy improvement in utilization levels while keeping the attrition at an industry


‐ 14 ‐




low level. Consequently, the company registered continued improvement in margins over FY2010 and

FY2011. As a large employee base helps TCS to keep enough human resource buffer to cater the

future growth, its management indicated the utilization levels to remain high in the upcoming quarters

as well. With this, we believe that the company’s current margins are sustainable. However, a tax

payment related to previous years may affect TCS’ post tax profits in FY2012E. We factored in the

same and assumed an effective tax rate at 23.0%, which is 640 bps higher than FY2011, for FY2012E.

R&D and innovation provides edge over competition

In order to keep pace with the ongoing developments in industry, TCS provides a strong focus on

Research and Development (R&D) activities. On one side, R&D helps the company to meet the current

customer needs with innovative offerings, on the other it helps to prepare for the upcoming changes in

the industry. Innovation differentiates TCS’ offerings from peers and acts as an edge over competition

while applying for a new deal.

Additionally, TCS believes in promoting the culture of recognizing inventions within the company. In

line with this, the company formed a dedicated Intellectual Property Recognition (IPR) cell during

FY2011. Key functions of the cell will include formation of an effective portfolio of IP assets. At the end

of FY2011, TCS was granted 68 patents while the company has filed more than 448 patents in different

jurisdictions. We believe that the future oriented patents could support TCS’ performance in the

upcoming quarters.

Continued dividend payments add on to stock returns

In order to provide value returns to its shareholders, TCS from more than 25 consecutive quarters is

providing dividends. Of the total cash generated since FY2005, the company has distributed 48% as

dividends. The pictorial presentation of sharing of cash generated from FY2005 is as follows:

We believe that TCS will remain committed to reward the shareholders in future as well. With this, the

dividends are expected keep on additions to investors’ return kitty, going forward.

Capital Expenditure

7,451

Acquisitions5,566

Dividends11,937

Sharing of Cash Generated since FY2005 (in ̀ Crore)


‐ 15 ‐




Peer Group – TCS versus Infosys – ‘The Bellwether Race’

Considering TCS’ size, its presence across the globe, and market capitalization, we selected Infosys

Technologies Ltd (Infosys), its nearest competitor, in the peer group. These two account for more than

15% of the total Indian IT exports. Furthermore, the giants are the trendsetters for the entire industry

as well. A brief overview of both the companies’ operations is reflected below:

We analyzed the performance of Infosys and TCS based on the following five fundamental parameters

over the last twelve quarters’ reported numbers:

1. Sequential growth in Revenues

‐4.0%

0.0%

4.0%

8.0%

12.0%

16.0%Revenues Growth over the period

INFY TCS

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

20.0%PAT Growth over the period

INFY TCS

75,000

100,000

125,000

150,000

175,000

200,000 Headcount over the period

INFY TCS

10.0%

13.0%

16.0%

Attrition over the period

INFY TCS

‐20.0%

‐6.0%

8.0%

22.0%

36.0%

50.0%

64.0%Returns over FY2011

INFY TCS

1,300.0

1,600.0

1,900.0

2,200.0

2,500.0 Market Capitalization (in ̀ Bn) over FY2011

INFY TCS

15.0%

18.0%

21.0%

24.0%

27.0%

30.0%PAT Margins over the period

INFY TCS

15.0

18.0

21.0

24.0

27.0

30.0

33.0 PE (x) over FY2011

INFY TCS

Source: Company Data, Microsec Research, Bloomberg

‐ 16 ‐




2. Q-o-Q increase in Net Profit

3. Total Headcount

4. Attrition Levels

5. PAT Margins

We found that TCS witness a sharp continuous improvement in performance from Q2 FY2009. The

implementation of customer centric organizational structure started providing fruits from that period.

While on the revenue growth front, the company outperformed Infosys in last three quarters, rise in

profits outperformed the nearest peer in most of the times during last eight quarters. The company’s

PAT Margins, lagging 547 bps in Q1 FY2008, are now slightly higher than Infosys. The headcount and

attrition gap also reflects TCS’ superiority over Infosys.

We also analyzed TCS’ stock performance over FY2011, which represents the period when TCS

outperformed Infosys on most of the fundamental factors. For this, we selected three parameters:

1. Price-to-Earnings (PE) Multiple

2. Stock Returns

3. Market Capitalization

The gap in PE multiple, between Infosys and TCS, narrowed down, to almost ‘nil’, during FY2011.

Furthermore, TCS provided whopping returns of 48.5% over FY2011 vis-à-vis Infosys’ 22.6%.

Additionally, the company’s market capitalization, just 3.1% higher than that of Infosys at the

beginning of the year, had a 24.5% premium over Infosys at the end of the year.

Based on above factors coupled with likely sustainability of the TCS’ growth momentum, we believe

that it is all set replace Infosys as the Bellwether of the Industry.

Peer Group Table

Particulars TCS Infosys

Net Sales 37,324.51 27,501.00

Growth (%) 24.30% 20.93%

EBITDA 11,178.36 8,958.00

EBITDA Margins (%) 29.95% 32.57%

Net Profit 9,068.04 6,823.00

Net Profit Margins (%) 24.30% 24.81%

Net Profit Growth (%) 29.53% 8.89%

EPS 46.27 119.41

BVPS 124.69 477.85

P/E 25.95 23.23

P/BV 9.63 5.81

EV/EBITDA 20.37 15.83

RoE 37.2% 25.0%

Source: Companies' Data, Microsec Research

‐ 17 ‐




Key Management Personnel

TCS is led by well educated and highly qualified professionals and industry veterans. The company’s

management helped it ride through the sub-prime crisis waves successfully by implementing right

strategies and frameworks at the right time. A glimpse of TCS’ management is depicted in the exhibit

below:

Continuing with its Customer Centric Organizational Structure, TCS recently made significant changes

in the same. Under this, the company’s CEO Mr. N. Chandrasekaran created small group of eight

leaders to oversee work of its multiple business units. These leaders will directly report to the CEO. The

eight units are further aligned 25 operating units. According to Mr. Kedar Shirali, Director of Investor

Relation, “This is not a consolidation…existing P&Ls have been retained; the empowerment, ownership

and accountability levels of the ISU-heads remain unchanged. In addition, stack owners will be

measured on the synergistic benefits expected from the alignment, such as improved win-ratios and

various operational metrics.” The management’s continued review and customer centric approach will

remain instrumental in TCS’ future performance, in our view.

Source: Company, Microsec Research

‐ 18 ‐




Valuation

We adopted a comparable valuation method to value TCS based on Price-to-Earnings (P/E) multiples.

Historically, the company traded on a five year average P/E multiple of 24.2x. This reveals a discount

to the peer group average P/E of 25.4x for the same period. In the longer run, we expect the company

to trade at a premium over the peer group average P/E based on its outperformance. With this, we

anticipate the P/E gap, of TCS and Industry to stand at 0.5x in subsequent years. As a result, to arrive

at a target P/E multiple for TCS we applied a 19% discount to five year average P/E of peer group.

Adding the premium, this resulted in a targeted P/E multiple of 21.1x for the company, which on

FY2013E EPS of `65.88, reflects a target price of `1,388.70, inclusive of dividend payments, for the

stock. Our target price translates a 22.2% upside over TCS’ current stock price. On an annualized

basis, this translates into returns of 12.7%. Following table represents the sensitivity of our target price

to variation of target PE multiples and EPS levels.

1,388.70 19.08 20.08 21.08 22.08 23.08

63.88 1218.70 1282.60 1346.50 1410.40 1474.30

64.88 1237.80 1302.70 1367.60 1432.50 1497.40

65.88 1256.90 1322.80 1388.70 1454.50 1520.40

66.88 1276.00 1342.90 1409.70 1476.60 1543.50

67.88 1295.10 1362.90 1430.80 1498.70 1566.60

PE Bands

‐

400.00

800.00

1,200.00

1,600.00

2,000.00

18.0 x 21.0 x 24.0 x 27.0 x CMP

PE

EPS

Source: Microsec Research, Bloomberg

Source: Microsec Research

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Key Risks

TCS’ efforts to adapt the ongoing changes in global environment are commendable. In addition, the

company has developed a Enterprise-wide Risk Management program to address various strategic,

operational, financial, and compliance-related risks. However, there are some external factors which

could impact TCS’ performance in the near term, which may lead to a downward revision in our share

price. These factors are depicted below.

Geo-political environment in Europe, especially in Greece, and Middle East remains

challenging. While Greece is on the verge of defaulting, anti-government movements in Middle

East keep the business environment dull. As a large share of TCS’ revenue pie comes from

these geographies, these factors may negatively impact its revenue growth.

Visa issues in the US emerged could also impact TCS’ performance. As the rejection rate of

Visas in the US has increased significantly, it may force the company to hire local talent for

servicing its customers. This factor is likely to be unfavorable for TCS’ cost benefit structure

and subsequently can trim its bottom line growth.

Currency movements continue to remain a key driving force of the company’s performance.

Appreciation of ` against other global currencies adversely affect its performance whereas

depreciation of the same remains favorable. As a result, a higher than expected appreciation

in the `, particularly against $, will impact TCS’ overall performance adversely in our view.

Although these factors may impact the performance of TCS in short to medium term, the long term

prospects of the company remain intact. The current bailout package for Greece by IMF and sanction

to adopt austerity measures may improve the situation in Europe. Furthermore, the need for cost

cutting can even pose some new business opportunities. The company’s GNDMTM model is likely to help

it manage balance with US visa issues. We believe that TCS’ large size, diversified geographical

presence, and revenues’ spread across various industry verticals will remain supportive in countering

these risks.

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Financial Statements

Income Statement (Quarterly) Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 E Q2 12 E Q3 12 E Q4 12 E

Net Revenues 8,217.28 9,286.39 9,663.35 10,157.49 10,652.71 11,533.74 11,957.87 12,292.04

Salaries and Wages 3,039.05 3,411.19 3,552.23 3,723.63 4,034.95 4,290.98 4,326.09 4,346.56

Overseas business expenses 1,253.74 1,390.40 1,405.57 1,479.50 1,544.64 1,672.39 1,733.89 1,782.35

Other Operating Expenses 1,514.99 1,708.63 1,805.89 1,861.33 1,970.75 2,133.74 2,212.21 2,274.03

EBIDTA 2,409.50 2,776.17 2,899.66 3,093.03 3,102.37 3,436.63 3,685.68 3,889.10

Depreciation and Amortization 161.53 172.46 188.39 212.88 204.73 213.72 222.99 232.41

EBIT 2,247.97 2,603.71 2,711.27 2,880.15 2,897.64 3,222.91 3,462.69 3,656.69

Interest 2.68 15.28 4.87 3.65 1.87 1.87 1.87 1.87

Other Income 95.46 70.75 194.21 243.58 106.53 115.34 119.58 122.92

Profit Before Taxes 2,340.75 2,659.18 2,900.61 3,120.08 3,002.30 3,336.37 3,580.40 3,777.74

Provision for Taxes: 402.80 460.14 504.14 463.75 690.53 767.37 823.49 868.88

Net Profit before Tax & MI 1,937.95 2,199.04 2,396.47 2,656.33 2,311.77 2,569.01 2,756.91 2,908.86

Share of Profits of Associates 0.30 - - - - - - -

Minority Interest 31.58 29.83 26.64 33.40 28.90 32.11 34.46 36.36

Net Profit after Tax & MI 1,906.07 2,169.21 2,369.83 2,622.93 2,282.87 2,536.89 2,722.44 2,872.50

Diluted EPS 9.74 11.08 12.08 13.43 11.66 12.96 13.91 14.68

Income Statement (Annual) FY2011A FY2012E FY2013E

Net Revenues 37,324.51 46,436.36 55,875.90

Salaries and Wages 13,726.10 16,998.58 20,105.86

Overseas business expenses 5,529.21 6,733.27 8,032.16

Other Operating Expenses 6,890.84 8,590.73 10,267.20

EBIDTA 11,178.36 14,113.78 17,470.69

Depreciation and Amortization 735.26 873.85 1,008.15

EBIT 10,443.10 13,239.93 16,462.53

Interest 26.48 7.48 7.48

Other Income 604.00 464.36 502.88

Profit Before Taxes 11,020.62 13,696.81 16,957.94

Provision for Taxes 1,830.83 3,150.27 3,900.33

Net Profit before Tax & MI 9,189.79 10,546.54 13,057.61

Share of Profits of Associates 0.30 - -

Minority Interest 121.45 131.83 163.22

Net Profit after Tax & MI 9,068.04 10,414.71 12,894.39

Diluted EPS 46.27 53.21 65.88

Balance Sheet (Annual) FY2011A FY2012E FY2013E

Shareholders' Funds 24,504.81 34,919.52 47,813.91

Minority Interest 458.17 590.00 753.22

Loan Funds 74.80 74.80 74.80

Deferred Tax Liabilities 109.49 109.49 109.49

TOTAL FUNDS EMPLOYED 25,147.27 35,693.81 48,751.42

Fixed Assets 5,716.27 6,748.48 8,029.67

Goodwill (On Consolidation) 3,232.00 3,232.00 3,232.00

Investments 1,762.67 1,762.67 1,762.67

Deferred Tax Assets (Net) 160.18 160.18 160.18

Net Current Assets 14,276.15 23,790.48 35,566.91

TOTAL USES OF FUNDS 25,147.27 35,693.81 48,751.42

Cash Flow (Annual) FY2011A FY2012E FY2013E

Operating Profit before WC change 11,042.75 14,570.66 17,966.09

Cash Generated From Operations 8,915.09 12,671.58 16,103.02

Operating Cash Flow 6,638.09 9,521.31 12,202.70

Investing Cash Flow (1,531.25) (1,906.06) (2,289.34)

Financing Cash Flow (4,658.90) - -

Cash Balance at beginning 1,024.37 1,502.59 9,117.84

Net increase / (decrease) in cash 447.94 7,615.25 9,913.35

Exchange Differences 30.28 - -

Deposits (maturity over 3 months) 5,849.38 5,875.50 5,875.50

Restricted Cash 26.12 - -

Cash carried to BS 7,378.09 14,993.34 24,906.69

Source: Company Data, Microsec Research RoE is calculated on Closing Basis All data in ` Crores unless specified Shaded part reflects estimates

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Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment AVP-Research [email protected]

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Vinit Pagaria Derivatives & Technical VP [email protected]

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Rating Scale

Recommendation Expected absolute returns (%) over 12 months

Strong Buy >20%

Buy between 10% and 20%

Hold between 0% and 10%

Underperform between 0% and -10%

Sell < -10%

‐ 22 ‐




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The investments discussed or recommended in this report may not be suitable for all investors. Investors should use this research as one input into formulating an investment opinion. Additional inputs should include, but are not limited to, the review of other. This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned or an official confirmation. Microsec Capital Limited is not responsible for any error or inaccuracy or for any losses suffered on account of information contained in this report. This report does not purport to be offer for purchase and sale of share/ units. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation discussed herein or act as advisor or lender I borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. The same persons may have acted upon the information contained here. No part of this material may be duplicated in any form and/or redistributed without Microsec Capital Limited’ prior written consent.

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TCS Initiating Coverage Note