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TCS - A very strange case for investing!

TCS Facts:


Growth Rate: 25% for past 5 years

Its the biggest company by MCAP in India and employs more than 2 Lakh people. Its CEO is very young and visionary. IT sector has a whole got a strong tailwind. Its governance is flawless and conducts the business in a very ethical manner. Its MCAP has grown 10 times in last 5 years.

In each quarterly results, TCS is beating the forecasts and always says very bullish things about future. If current growth rate is sustained and CEO’s to be believed then could it grow 10 times further in next 5 years? If yes then its MCAP would be 700 B USD!!! By all means it looks unrealistic today, let me know your views.

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Highlights of the call by Capital Mkt:

The Revenues grew by 1.5% QoQ (32.5% YoY) to Rs 21294 crore for the quarter ended December 2013 and net profit was up by 15.1% QoQ to Rs 5333 crore.

The Growth in revenues was on the back of 1.8% volume growth coupled with the 74 basis points improvement in the Realizations during the quarter.

In USD terms, the revenues grew by 3% QoQ to USD 3.44 billion for the quarter ended December 2013 and Operating Profit grew by 1.6% QoQ to USD 1.02 billion and Net profit grew by 15% QoQ to USD 858 million for the same period.

The International revenues grow 3.8% in dollar terms during the quarter. The volumes from the international business grew by 2.9% QoQ for the same period.

The Operational improvement of 60-70 bps totally re-invested into the business during the quarter. Also, Currency headwinds had impact of 40 bps during the quarter.

The Other income includes Rs 299 crore forex gain during the quarter compared to the Rs 377 crore loss in the Q2.

The No of USD 50m+ clients increases by 2; No of USD 20m+ clients increases by 4 during the quarter.

It has won 8 large deals during the quarter. Also, the some of the deals in retail space were pushed to the Q4.

The Growth in Q3 was driven by industries like Life Science & Healthcare, Manufacturing, Media, Travel & Hospitality and Telecom. The company's broad based presence across markets and services helped overcome seasonal weakness in some markets.

The US market impacted by the retailers, number of holidays, furloughs affected the MFG, Hitech and bank verticals during the quarter.

Also, the Europe led growth, driven by the continuous investments being made in that market, while North America and UK also grew during the quarter. Among growth markets, Latin America, APAC and MEA registered strong growth. India business suffered from volatility and declined sequentially. Among service lines, Business Process Services, Enterprise Solutions, Global Consulting were the leaders.

In general, The Q3 had headwinds from the lower number of working days coupled with the higher furloughs. It expects the domestic market softness to continue to the next couple of quarters. Further, it clarified that India business expects to be conservative until the elections. The domestic market will be uncertain until the June quarter

IN BFSI, Financial Services done well but the Insurance was soft during the quarter. All the service line except asset leverage Solutions has done well during the quarter.

The digital side has lot of demand and it is anticipated to be next leg of growth. The Company is witnessing strong engagements across the customers. It is the big opportunity to drive the few billion dollars in next few years. The digital integrated with SMAC to be the key area. It expects the digital revenues to increase sequentially across the customers. There is lot more opportunities, most of the digital is on strong data and expected to be the back ended opportunity. The consumer facing companies expected to have huge play â Retail, CPG companies may go for massive change in architecture services to the product architecture. It also related to the banking, Insurance and MFG vertical lesser than former. The data management and the data architecture are going to be the major area.

The number of customers engaging in the digital and the number of deals and the size of deals are upward pace.

The artificial intelligence and robotics will be incremental of the digital story but in the early stages now.

The large scale digital area engagements are picked up and the size of the deal pick up and there will be pricing is pick up.

In the digital space, the deal sizes are the incremental and above the million and multimillion engagements are emerging.

The TCS has built people, Systems, and tools. It also built the capability across the industries for various service offerings.

The Company has well play in the Europe and built the critical mass. The Europe market is opening up and there is huge potential in the US market. There expected to the increase in the deals in these geographies. The discretionary spend is to majorly driven by the digital.

The addressable spend is increasing in the Europe market. In the Latin America, it grew substantially and expected to do extremely well going forward.

It is extremely bullish about the US market and FS segment.

In the demand pick up environment â the concerns are Wage hike (go according to the market), attrition (will not be the complacent), will focus on the regulatory changes in the US and other markets.

There was a total gross addition of 14,663 people (net addition of 5,463 employees) taking the total employee strength of 290,713 employees on a consolidated basis. The utilization rate (excluding trainees) was at 84.3% and that including trainees was 77.5 %. The Utilizations were all-time high during the quarter.

The attrition rate (LTM) was stable at 10.9% including BPS. The attrition rate in IT was at 10.3 %, while BPS attrition fell to 13.4 %.

The Hiring Target increased further to 55,000 from 50,000 for FY14.

The accounts receivable 79 days compared to 80 days in the previous quarter.

On client budgets â It indicated that there will be significant spend in three areas in the 1) simplification, rationalization portfolios, infrastructure side, and shared services in the context of BPO 2) across the board is digital - SMAC integrated to the front office 3) Risk regulatory and compliance.

It expects FY'15 will be the much stronger and better than FY'14.

It wants to operate at Margins of around 26-27% and clarified that will it re-invest more into the business at appropriate time.

At its 52W high, TCS was commanding a market cap of $75 billion roughly trading at ~6x sales of $13 billion.

Now to grow at a market cap of $700b by 2018,

at 6X sales -sales need to grow at CAGR of 55% to $116bn from current $13bn

and at 22% PAT margins, PAT needs to grow at CAGR of 63% to $25bn from current $2.3bn

While Sales/PAT is growing at 22%/25% for the last 5 years.

To me this seems impossible. Will love to hear contrary views though.

IMHO TCS is not a complex story.Its a simple story comprising of

  1. Big opportunity size . Nearly 2 trillion dollar worth of outsourcing has to happen in near future.

  2. Very decent ROCE

  3. Play on Indias demographic dividend. The programmers n users will come from Indias vast talent pool catering to the whole world requirement for next several years or even decade.

  4. Increasing usage of IT in all gamut of life specially Mobile, Cloud , social media , miniaturisation of computers .

  5. No wage pressure due to big demand supply gap due to proliferation of large no of colleges.

  6. No commercial rent pressure as commercial rents are on all time low n deals available for 40-50 Rs per sq ft for next 8-9 years.

  7. Rupee tailwinds as currency keeps on depreciating n expected to increase due to Huge Indian Oil, Gold , electronic consumables n other imported items demand n manufacturing sector stagnation resulting in lower exports

  8. Big levers such as variable pay n verticalzation leading to higher accountability amonst employees n better delivery.

  9. big increase in discretionary spend n in pentup demand. Good demand coming from so far unresponsive regions like Continental Europe , Korea, Japan, Latin America

  1. College education extremely expensive in US . Approx cost of 2 Crore Rs vs very reasonable Indian college education cost.

If opportunity size specially worldwide n ROCE is good we should not touch cos like TCS. These are great compounding machines creating huge wealth. Otherwise on such imagined worse case scenarios many people have sold cheap only to regret heavily later.

Disc- Invested in TCS since its IPO in 2004 @ 212.5

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Highlights of the call by Capital Mkt:

The company registered consolidated sales of Rs 22111 crore, up 2.6% QoQ and 22.9% YoY.

In dollar terms it registered Revenue of $3,694 Mln, growth of 5.5% QoQ and 16.7% YoY.

In Constant currency terms revenue grew 4.8%, volume grew 5.7% QoQ

Under-penetration led growth in Europe and discretionary/digital spending led growth from US to fuel revenue growth.

The company has a strong demand pipeline in place and its customer-centric mindset, leadership in the âDigital’ space and strong execution capabilities will help it sustain momentum.

TCS continues to reiterate that the usual phenomenon of H1being stronger than H2 will hold true in FY15.

Among verticals, TCS indicates that apart from good prospects in Manufacturing, Retail, Hi Tech and Life sciences, it should see very strong growth in BFSI and Telecom in FY15 (company believes both the verticals could go ahead of company level average).

Growth prospects remain rock solid in Europe (both for TCS and the sector as a whole) as the market continues to become more amenable for offshoring/outsourcing with TCS’s early investments in the market expected to continue driving results.

Time & Material contracts accounted for 47.5% in June 2014 quarter against 47.8% in June 2013 quarter and 47.6% in March 2014 quarter. The rest came from Fixed Price & Time contracts.

O.P at Rs 5,935 crore; grew 22.5% Y-o-Y and (6.0%) Q-o-Q.O.M stood at 26.8%.

Recent currency appreciation coupled with wage hikes to impact margins in the near term. The management is confident of sustaining EBIT margins in the 26-28% range in the medium term

Growth was fairly broad-based across geographies, industry segments and service lines. The insurance portion of financial segments was one weak area â revenue declined sequentially in this segment. Management expects this segment to start growing again from September 2014 quarter although FY15 growth would likely lag overall company growth.

On the occasion of the 10thanniversary of TCS’ IPO, the board of directors announced a special dividend of Rs 40 per share. The special dividend by itself would entail a payout of over Rs 80 bn for the company or about a third of its current cash balance.

The company added (Gross) 15,817 Employees & it had Net Additions of 4,967 employees.June 2014 quarter saw all time high utilization rates at 85.3% (excluding trainees).

The management was very pleased with the client matrix. It added five new $50+ million clients during the quarter. Clients with $20M+ revenue band grew by 8.

US$ 1m+ clients stood at 724 in June 2014 quarter against 657 in June 2013 quarter and 714 in March 2014 quarter.

US$ 5m+ Clients stood at 359 in June 2014 quarter against 309 in June 2013 quarter and 354 in March 2014 quarter.

US$ 10m+ Clients stood at 244 in June 2014 quarter against 216 in June 2013 quarter and 231 in March 2014 quarter.

US$ 100m+ Clients stood at 24 in June 2014 quarter against 19 in June 2013 quarter and 24 in March 2014 quarter.

The company’s disciplined stance in operations helped it mitigate the impact of multiple headwinds like currency movements, accelerated depreciation norms and wage hikes during the quarter. Looking ahead, the company plans to continue to maintain its operating margins in its desired band by operating efficiently.

In June 2014 quarter, TCS posted the highest incremental revenue of $191 million in the last 15 quarters driven by holistic growth across markets led by North America. Asia-Pacific, India, United Kingdom, Europe all continued to grow.

Growth was seen across all industry segments led by Media & Information Services,

Life Sciences, Retail, Telecom with all non-BFS verticals growing in excess of five percent sequentially.

As of June 30, 2014, the company has applied for 1804 patents including 58 applied during the quarter. Till date, the company has been granted 129 patents.

The company continued to drive employee productivity to support business growth. The total employee strength at the end of June 2014 quarter was 305431 on a consolidated basis. The utilization rate (excluding trainees) was at an all-time high of 85.3% and that including trainees was 79.8%.

The attrition rate (LTM) was seasonally higher at 12.0% including BPS.Women employees stood at 32.7%.

The company has already started on-boarding the campus trainees this year with 2,500 joining in June.

Exceptional items consist of a write back of Rs 665 crore due to change in method of charging depreciation on assets as at April 1, 2014 and a charge of Rs 175 crore in depreciation due to change in useful life of assets as at April 1, 2014.

The management is very bullish on Digital business. It has won many orders in this space. Few being:

It won an engagement with an American healthcare and insurance company to build big data platform for enabling 360 degree customer view

The company was selected by a large North American food retail chain to develop digital applications that provide “on the go” analytics and enable quicker decision making for store managers

It was chosen by a leading global insurance major to develop customer centric sales applications using digital technologies

CEO & MD, N Chandrasekaran addressed the call.Highlights by Capital Mkt;

SequentiallyTCS registered an 8% rise in consolidated sales to Rs 23816.48 crore for the quarter ended September 2014.In Rupee terms Revenue of Rs 238,16.5 crore, grew 7.7% QoQ and 13.5% YoY.In USD terms, Revenue of $3,929 Mn, grew 6.4% QoQ and 17.7% YoY.Volume growth was 6.1%, constant currency sales growth was 7.4% and organic Constant Currency sales growth was 4.6%.OPM fell 10 basis points to 28.6. OP grew 7% to Rs 6800.40 crore.Net profit fell 6% to Rs 5244.28 crore.

On y-o-y basis TCS registered a 14% rise in consolidated sales to Rs 23816.48 crore for the quarter ended September 2014. PBT grew 11% and net profit rose 13%.Growth in Q2 was broad-based with all industries growing on a sequential basis. The impact of the integration of newly merged entity in Japan also provided additional growth to units like Manufacturing, Hi-Tech.All core markets like North America, Europe and UK grew smartly.Emerging markets continued to be volatile with India growing while Latin America faltered in Q2.

There was balanced growth across IT and other service lines led by Infrastructure Services and Engineering Services.September 2014 quarter was driven by strong volumes and robust utilization rates.The company's well-rounded showing has been highlighted by broad-based growth in its key markets, industries and services as it continues to deepen engagement with customers.Clients in $50M+ revenue band increased by 4 and in $20M+ revenue band by 9

The company continued to hire to support business growth. There was a total gross addition of 20,350 people (net addition of 8,326 employees) taking the total employee strength of 313,757 employees on a consolidated basis.The attrition rate (LTM) was at 12.8% per cent including BPS.Utilization stood at 86.2% (excluding trainees) and 81.3% (including trainees).Customers are focused on using Digital technologies to reimagine their business in multiple dimensions and with the company's significant investments as well as deep capabilities in these areas, it remains well positioned to act as a catalyst and enable their business innovation across the enterprise.

As of September 30, 2014, the company has applied for 1931 patents including 94 applied during the quarter. Till date, the company has been granted 150 patents.During the quarter, the company crossed the milestone of employing 100,000 women professionals with a gender diversity ratio of 32.9%.

Diversity of talent remains a key source of strength for the organization and during the quarter, it crossed the milestone of having 100,000 women professionals in workforce.The company's hiring plan for FY15 is on track as it continues to build a talent pipeline in line with business demands.

Deal pipeline in India is good and the management has turned positive on India and expects growth in coming quarters.Some of the ramp up expected in September 2014 quarter got postponed.

US$ 5m+ Clients stood at 367 in September 2014 quarter against 359 in June 2014 quarter and 318 in September 2013 quarter.US$ 10m+ Clients stood at 247 in September 2014 quarter against 244 in June 2014 quarter and 224 in September 2013 quarter.US$ 50m+ Clients stood at 62 in September 2014 quarter against 58 in June 2014 quarter and 53 in September 2013 quarter.US$ 100m+ Clients stood at 24 in September 2014 quarter against 24 in June 2014 quarter and 22 in September 2013 quarter.

Managing Director, N Chandrasekaran add the call.Key Highlights by Capital Mkt;

As per the management, Dec'14 quarter traditionally remains weak due to seasonality of business and less number of working days in this quarter. The company earlier had already informed about weak quarterly results and pressure in BFSI business.There was a 2.3% rise in pricing in Q3 on QoQ basis which helped the revenues.

Overall the deal pipeline remains strong. Management is confident of strong deal momentum for FY 2016. TCS has signed about 7 large deals across 5 sectors. Number of US $ 100 M clients increased by 1 and that of US $ 50 M by 3 during Q3.

The company negated all the rumors of employee attrition and confirmed that they are confident of lower attrition. The company will continue to incentivize the employees. Also hiring target for FY 2015 will exceed what was budgeted at the start of the year. Q3 Attrition rate was at 13.4%. The company added about 16561 employees during the quarter.

The concern for the company remained the retail business which did not pick up as planned by the management. Also the Diligenta BPO subsidiary arm in UK saw an expected slowdown due to some change in regulations. It will take about 2-3 quarters time before, things to pick up at its subsidiary end.

Country wise, US continue to look extremely strong and promising, while Latin America was a mixed bag. But management believes that enquiries show the things will improve over that front.

On vertical side, while most of the segments are fine, energy basket is seeing some slowdown due to lower oil prices.The company has not seen any cancellations or even deferrals of any of its projects.Other income includes forex gain of Rs 241.50 crore during the quarter.Overall, OPM guidance of 26-28% range is maintained by the management.

Overall, management is optimistic about growth momentum for FY 2016. Management also expects retail business to pick up in Q4. Business in North America, EU, India, Latin America, UK continues to look good. US economic growth and increasing outsourcing opportunities from EU will support the growth momentum.

Highlights of the call by Capital Mkt:

SequentiallyTCS registered a 1% fall in consolidated sales to Rs 24219.76 crore for the quarter ended March 2015. OPM fell 30 basis points to 28.5%. OP fell 2% to Rs 6908.66 crore.EO income was Rs 2627.91 crore against nil. Thus PBT after EO fell 32% to Rs 4935.79 crore. Net profit fell 30% to Rs 3712.67 crore.

In March 2015 quarter sales in dollar terms stood at $ 3,900 Mn, down 1% QoQ and up 11% Y-o-Y. In constant currency revenue grew 1.6%.During the quarter clients in $100M+ revenue band increased by 4, in $50M+ revenue band by 3 and in $20M+ revenue band by 3.The quarter saw strong growth in BFSI, Retail and Manufacturing; Europe & UK.During the quarter utilization stood at 85.4% (ex-trainees) and 81.5% (including trainees). The company added net 1,031 employees in Q4 and the attrition rate was 14.9%.

Employee cost was down 3.1% QoQ. It partially benefited from appreciation of INR against global currencies other than US$.

Other Income (consolidated) for the quarter and year ended March 31, 2015 includes foreign exchange gain of Rs 662.90 crore and a gain of Rs 1308.47 crore respectively (Previous period: gain of Rs 204.48 crore and gain of Rs 17.62 crore respectively).In FY 2015 consolidated sales grew 16% to Rs 94648.41 crore. OPM fell 210 basis points to 28.6% which slowed OP growth to 8% to Rs 27109.62 crore. EO income was Rs 2627.91 crore against nil. Thus PBT after EO rose 4% to Rs 26298.49 crore. Net profit grew 4% to Rs 19852.18 crore.Employees who have completed at least one year in service will be eligible to receive the one-time bonus. Each employee will be given a reward equivalent to one week’s salary for every year of service completed at TCS.

In FY 2015 sales in dollar terms grew 15% to $ 15,454 Mn. In constant currency terms revenue grew 17.0%. Excluding employee rewards OP stood at Rs 2542.44 crore. OPM stood at 26.9%. Excluding employee rewards net income stood at Rs 2169.61 crore. Net Margin was 22.9%.

In FY 2015 clients in $100M+ revenue band increased by 5 in $50M+ revenue band by 15 and in $20M+ revenue band by 26.FY 2015 saw steady growth across all key industry segments.In FY 2015 TCS had gross addition of 67,123 associates and net addition of 19,192 in FY 2015. Closing headcount stood at 319,656.The company has maintained profitability in a challenging operating environment, where currency has been a strong headwind for some time. Despite these and other macro challenges, its goal has been to support business growth while ensuring it continues to invest in a calibrated fashion for the future.

Cross currency movements in the company’s key markets such as the US, UK and Europe reduced as much as 190-200 basis points off dollar-denominated growth.

Technology is not just becoming integral to business but to our daily lives. TCS is playing a leading role in this ongoing revolution, helping clients navigate and leverage Digital to help grow businesses.The company’s deep relationships with customers, domain expertise and strong rigor in operations have helped it continue to show growth leadership in FY15.The company has laid a strong foundation for growth in FY16.Its investments in Platforms, Digital and Automation are gaining traction with clients.

With its market investments in USA, Europe and Japan, the management is upbeat that the coming quarters will bring more opportunities to partner with customers across multiple industries.There was holistic growth across markets and industries during FY 2015.

Europe led growth in major markets, while UK and North America continue to grow in line with the company average. All major industry verticals grew in double digits led by Retail, Manufacturing, Life Sciences & Healthcare and BFSI during FY15

During FY15, the company trained and integrated over 67,000 professionals who joined and with business demand continuing to be robust. It has made 25,000 offers on engineering campuses for trainees who will join from the second quarter of FY 2016.TCS also crossed the milestone of employing over 100,000 women in FY15 with gender diversity of 33% as well as 122 nationalities represented in its global workforce.As of March 31, 2015, the company has applied for2277patents including173applied during the quarter. Till date, the company has been granted206patents.

The Board of Directors at its meeting held on April 16, 2015, has declared a final dividend of ` 24/- per equity share. With this the total dividend was Rs 79 per share. Dividend pay out ratio stood at 82%.

On March 08, 2015, the company subscribed to 100% share capital of TCS Foundation, a not-for-profit initiative registered under Section 8 of the Companies Act, 2013 with a paid-up capital of ` 1 crore. This company aims at promoting projects and/or programmes relating to Corporate Social Responsibility.The company is witnessing tough arithmetic’s for the company as it enters FY16 compounded by the cross currency headwinds. However the management remains confident of having a good growth year in FY16.It feels that the underlying business momentum remains decent.

It expects slight increase in IT spending in constant currency terms in CY15 with allocations for spending on Digital initiatives expected to increase as well as higher discretionary spending across several verticals barring Energy & Utilities and Telecom.Amongst verticals, BFSI is expected to do better in FY16 as compared to FY15.

The management expects traction in Manufacturing, Retail, Life Sciences to continue.TCS also announced 9 large deal wins during the quarter which include 4 in financial services, 2 in retail and 1 each in Telecom and Media.Clients are increasing digital spending.Spending in energy, utility and telecom vertical will continue to be subdued.BFS will grow in line with or above company average. Weakness in the Insurance services business excluding Diligenta has now bottomed. However weakness in Diligenta is expected to continue for couple of quarters.Management expects better discretionary spending in FY16 compared to FY15.

CEO & MD, N Chandrasekaran & Rajesh Gopinathan, CFO add the call.Highlights by Capital Mkt:
Sequentially TCS registered a 6% rise in consolidated sales to Rs 25668.11 crore for the quarter ended June 2015. OPM fell 50 basis points to 28.0%. OP rose 4% to Rs 7195.15 crore.PBT fell 1% to Rs 7460.35 crore.EO expense was nil against Rs 2627.91 crore. Thus PBT after EO grew 51% to Rs 7460.35 crore.March 2015 quarter EO loss represents Rs 2627.91 crore recognized in the statement of profit and loss on account of one-time bonus to eligible employees.Finally, net profit soared 53% to Rs 5684.12 crore.
On y-o-y basis TCS registered a 16% rise in consolidated sales. OPM fell 70 basis points to 28.0% which slowed OP growth to 13%. PBT grew 11%. EO income was nil against Rs 489.75 crore. Thus PBT after EO grew 4%. PAT was up 2%. After minority interest, net profit grew 2%.In Dollar terms revenue stood at $ 4,036 million, up 3.5% QoQ and 9.3% YoY. This was the slowest sequential growth in the first quarter in the last four years.
While highlighting Jun’15 quarter sequential US$ revenue growth of 3.5%, the management pointed out that 9.9% q-o-q growth in Telecom was a positive surprise while there was a sequential revenue decline in LATEM (6.4% q-o-q) and Japan.During the quarter volume grew 4.8%.The difference in revenues between what it posted and what was expected had a margin of about $20 million, and that is explained by weakness in Japan, Latin America and in manufacturing.During Jun’15 quarter EBITDA margins were impacted by 1) wage revision (-190bps) 2) rupee depreciation (+70bps) and 3) Operational efficiency gains (+ 30bps).The company reiterated its target EBIT margin range of 26-28% for FY 2016.
During Q1, TCS posted the incremental revenues of $136 million driven by strong growth across core markets led by North America, UK, Europe, MEA and Asia-Pacific.The company declared Total Dividend per share of Rs 5.50.The challenges in Energy and markets like Latin America and Japan were responsible for the pressure on the revenues unlike the headwinds from Telecom and Energy/Utilities during Mar’15 quarter.TCS is continuing to do well in its core markets/segments as well as winning Deals in the Digital space.‘Digital’, an umbrella term to describe technologies such as data analytics, mobility and cloud computing that are reshaping business models in the software industry, comprised at least 12.5% of revenue.
The company disclosed for the first time that Digital accounts for around 12.5% of its revenues. It grew by double digits sequentially. The management feels that the business has good traction and it looks like it could beat its earlier target. Last year the management has stated that digital would be a $5-billion business in the next five years.The company has won several deals across regions. It won 5 deals in US and 2 in Europe.Deal sizes in ‘Digital Tech’ are becoming larger with some clients embarking on large digital transformations.During the Jun’15 quarter, 38 new clients signed for TCS’s cloud platform solution and company is in process of closing 3 deals for its recently launched ‘Ignio’ platform.
Considering the strong pipeline and market adoption of digital across industries, the management is investing to train over 100,000 professionals this year in all relevant technologies.Immersive content has been created covering the entire gamut of Digital offerings. The new Digital Learning platform and allied infrastructure will enable ‘anytime-anywhere’ learning in a cloud environment.Demand for IT services are strong except for weakness in Energy vertical and volatility in Telecom vertical.
Management mentioned that growth momentum is one of the strongest and deal pipeline is healthy across geographies including Europe.Growth among industry segments was led by Retail, Life Sciences, BFSI and Telecom. Asset-Leveraged solutions led the growth among service lines followed by Infrastructure, Assurance and BPS.Company won deal three deals each in BFSI and retail, one each in Telecom, manufacturing and Media. Deals are spread across geographies with five deals in North America, two in Europe, one each in UK and Asia-Pacific.Utilization (excluding trainees) stood at 86.3%.
The company added Ten clients in $20M+band and one client each in $50M+ and $100M+ bands.
Its significant investments in IP and platforms, digital capabilities and its execution track record gives it a firm foundation to capture growth in the current financial year.Its disciplined approach to all aspect of operations helped in maintaining operating margins within its stated range despite hedging volatility and the impact of its annual cycle of salary hikes and promotions.
The company continues to focus on optimizing cash conversion ratios and investing in people and technologies ahead of business needs.As of June 30, 2015, the company has applied for 2359 patents, including 66 applied during the quarter. Till date the company has been granted 231 patents.The total employee strength at the end of Q1 was 324,935 on a consolidated basis with gross addition of 20,302 associates (net addition: 5,279 employees).The utilization rate (excluding trainees) was at a high of 86.3% and that including trainees was 82.9%.The attrition rate (LTM) was seasonally higher at 15.9% including BPS. The attrition rate during the quarter has been of the highest for the company in the recent past.The percentage of women in TCS rose to an all-time high of 33.5% while the number of nationalities increased to 124.Its focus remains on making TCSers proficient in new technologies, giving them the tools to be more productive and building an engaged and diverse team of global professionals. This continues to yield results with utilization rates being maintained at well over 85%.The process of on-boarding this year’s campus trainees has begun.The company has 4,540 employees overseas.

6000 crore fine by a grand jury on TCS (and another TATA firm)
What a reversal of fortune for TCS? wow

20 K Profit and 5 Lakh Mcap - I dont think now its Multibagger stock

any Bad News would hurt and Keep watch dollar I Believe it will fall to 60

then Its huge negative FOR IT companies

dont forget its all about rupees fall 45 to 65 50% Abroad revenue increase by doing nothing

So Keep Watch Rupees if rupees gonna be strong TCS have to fall further

CONFERENCE CALL - from Capital Markets

As most of the headwinds of FY 2016 have bottomed out, the company is well-placed to deliver a strong FY 2017

TCS held its conference call on 18 April 2016 after it declared results for quarter and FY ended March 2016.

The company’s CEO and MD, N Chandrasekaran and Rajesh Gopinathan, Chief Financial Officer addressed the call.

Highlights of the call:

  • In the fourth quarter, revenues grew 2.1% q-o-q on a constant currency basis. In INR terms, it had a cross currency benefit of 1.9% resulting in a reported revenue of Rs 284.486 billion which is a sequential growth of 4% and a year-on-year growth of 17.5%.

  • In USD terms cross currency impact was 60 basis points negative, resulting in a reported revenue of $4.207 billion which is a q-on-q growth of 1.5% and a year-on-year growth of 7.9%.

  • The constant currency growth of 2.1% is made up of its volume growth of 3.2% and realization impact of negative 1.1%. Its full year revenue for FY 2016 was Rs 1.086 trillion and year-on-year growth of 14.8% in INR terms.

  • In U.S. dollar terms, revenue was $16.545 billion and translates into an annual growth of 7.1%. Constant currency revenue growth for the year is 11.9% which is made up of a volume growth of 12% and the constant currency realization of a flattish negative 0.1%.

  • With incremental revenue on a constant currency basis is $1.83 billion, the reported incremental revenue is $1.1 billion with cross currency movements during the year erasing nearly $750 million of revenue.

  • At the OPM level these currency movements resulted in a benefit of 0.6% mitigating the 1.1% increase in expenses mainly towards various investments. So, overall operating margin are a 26.1% for the quarter and a 26.5% for the full-year.

  • Gross margins were down about 90 bps and the company pulled back some of it on the SG&A side, primarily driven from benefits on the employees part of the man power cost. So net-net, It ended ending with about 50 bps down. And for the full year, its at 26.5% which is net of an exchange impact of about 130 bps positive. So, broadly the management feels that it’s in line with what it has been saying.

  • Net income for the fourth quarter stayed flat at 22.3% and for the full year, net income margin declined 0.6% year-on-year to 22.3. Its effective tax rate for the year is at 23.6%.

  • In cash flow terms, it ended this quarter with a cash from operations of 22.5% and overall cash flow operations of the Rs 64.1 billion.

  • For the full year net cash from operations amounted to Rs 233.8 billion which is 21.5% of revenue and free cash flow was Rs 214.2 billion, a growth of 17% y-o-y. After paying out of this Rs 95.15 billion in dividends during the year, its invested funds as of March 2016 is at Rs 329.3 billion.

  • The board has recommended a dividend of Rs 27, bringing the total for the year to Rs 43.5 per share, a payout ratio of 42%.

  • The company ended the fiscal year 2016 on Q4 on a relatively stronger growth. For the quarter, it has delivered a robust volume growth of 3.2% quarter-on quarter which is very impressive for a seasonally weak quarter that resulted in a constant currency revenue growth of 2.1% QoQ, under rupee revenue growth of 4% QoQ, under USD revenue growth of 1.5% QoQ.

  • OPM during the quarter was 26.1% at the operating level and the net margin was at 22.3%.

  • For the full year, constant currency revenues grew by 11.9% and incremental revenue addition of $1.83 billion. Volume growth was at 12% for the prior year, while the constant currency realization were flattish.

  • In INR terms, revenues crossed a trillion rupee mark this year clocking INR1.086 trillion in growth of 14.8% year-on-year.

  • The reported USD numbers on the other hand were severely disrupted by a cross currency impact of 4.8% resulting in USD revenue growth of 7.1% year-on-year. Coming to the margin, it had the gross margin of 43.9% under operating margin for the year of 26.5%, well within its preferred range of 26% to 28%. Net margin for the year was at 22.3%

  • From a client metrics point-of-view, customer-centric business model and philosophy of investing in building newer capabilities to continually broaden participation in customers’ IT spending has paid rich dividends.

  • Its client metrics continue to be outstanding. During the quarter it added three more clients in the 100 million band and eight customers in the 50 million band and 17 in the 10 million band.

  • For the full-year, it added eight more clients in the 100 billion revenue band, bringing the total to 37 and in the 10 million revenue band, it added 37 clients this year, bringing the total to 298.

  • Given the severity of the gross currency-induced distortion, the management stuck to only constant currency numbers for the rest of its comments. In Q4, growth was led by BFSI which grew 3.2% QoQ. Clearly the weakness in insurance is now behind and even diligent is bottoming out. Three other verticals, retail, manufacturing, energy and utilities also grew above the company average during the quarter.

  • Geography-wise, North America grew by 2.4% and Continental Europe by 3.6% QoQ, India at 2.2% and Middle East and Africa at 9.5% on a QoQ basis.

  • For the full-year, the growth was led by a strong performance in BFSI which grew at 11.7% year-on-year, an acceleration over the previous prior year’s growth. Excluding insurance banking and financial services business grew at 14.8% year-on-year. Besides BFSI, another five verticals, retail, manufacturing, licenses and healthcare, energy and utilities and travel and hospitality all grew above the company average growth in constant currency terms.

  • Geography-wise, growth was fairly well distributed with smaller geographies like Latin America, Asia-Pacific, Middle East and Africa showing higher growth. From a services perspective growth was led by asset leverage solutions, infrastructure services and assurance. In terms of demand, the key events this quarter the company signed several large deals which were distributed across six verticals, two in banking, one each in insurance, manufacturing, healthcare, high-tech and media.

  • Georgaphy-wise North America accounted for five out of the seven deals and of the remaining two, it had one each in Continental Europe and United Kingdom.

  • Three broad categories, digital adoption; the quest for efficiency and simplification have been the broad drivers of demand for services. All the three are interlinked, but of these customers are most excited by the possibilities opened up by digital technologies and are investing bit time. Their digital programs are now well established and progressing well. The scope and size of programs are continually increasing.

  • Revenues from digital engagement grew in double digits QoQ and made up 15.5% of Q4 revenues. For the full year, digital revenues made up 13.8% of revenues crossing the $2 billion mark, a growth rate of 52.2% over the prior year.

  • Within the digital stack, its digital marketing, mobility revenues crossed $1 billion milestone in April 2016 or 52% of its clients have engaged TCS for digital services and in many of the key verticals, it is the primary digital partner for large clients in those verticals. Many investments made over the last several years have helped it achieve this level of trust.

  • From a people front, the company ended the year with 353,843 employees, adding over 90,000 employees on a gross basis and over 34,000 employees on a net basis.

  • Attrition rate continues to go on a downward trend. Q4 attrition on a LTM basis has come down further by 60 basis QoQ to 14.7% in IT services.

  • For FY ‘17, the company announced wage increase of 8% on the average and going up to 12% for top performers for employees in India. In other geographies, the increase ranges from 2% to 6%.

  • Further, it has done away with the bell curve for performance ranking. Performance ranking is now based on individual performance. With all of its investments in training increase the employee engagement and implementation of employee-friendly practices, it expects further improvement in employee satisfaction and retention levels in FY ‘17. The improved retention and increased productivity should also result in reduced overall hiring next year.

  • In addition, the company has worked on automation of many of the engagements that it is doing. So, it expects expect about 32,000 trainees to join from the campus offers made in FY ‘16; any other lateral addition will be very recalibrated, but it will be a much lower figure compared to FY 2016.

  • Equally, the company’s focused on reducing dependency on work visas. The company is focused on reducing dependency on work visas through increased local hiring and leveraging the global delivery network. In FY ‘16, that is in April, it has applied for only a third of the work visa that what it had applied for in the prior year. It has taken in significant number of local recruits in all markets, including from university campuses. Today, it believes, it is one of the biggest recruiters in the market in which it operates, particularly the United States.

  • For FY ‘17, while the company does not give revenue or earnings guidance, there are a number of business systems that give the management great confidence. First, it is witnessing a dramatic acceleration in digital spending by customers. Their focus is now shifting from pure front-end work of prior years to a tighter integration with their existing applications time. With speed to market being critical, its scale and digital capability positions the company strongly to become the preferred digital partner for more and more clients and win a disproportionate share of their incremental spending.

  • Second, large segments of its business BFSI, North America and Continental Europe have shown very good resilience and have grown very well in Q4 with a good exit, building up strong momentum going into FY ‘17.

  • Third, all the major headwinds from the same time last year be it Diligenta, insurance or Japan have all softened. In fact Latin America has actually turned the corner and has done very well during the last couple of quarters and India has done well reasonably this quarter.

  • Lastly, its order book is looking good and its deal pipeline is strong.

  • Customer metrics are looking excellent, its digital platforms are gaining customer traction and are in a growth mode. So, all in all, the management thinks that it is well placed to deliver a strong year in FY 2017.

  • On the adverse jury verdict from the recently completed trials in a lawsuit filed against TCS by Epic Systems in the court of Western District Madison, Wisconsin the management reiterated that TCS did not misuse or derive any benefit from any of the documents downloaded from the Epic Systems’ user web portal. It has already issued press statement as the case is with the court. The management would not like to make any further statements as far as this particular case is concerned.

  • Revenue growth had been impacted for several quarters by several pockets of weakness – geographies of Latin America and Japan, and the verticals of Telecom, Insurance and Energy & Utilities. These have been gradually seeing their bottom, starting with Latin America, which turned the corner in 3QFY16. During 4Q, TCS saw the verticals of Insurance and Energy & Utilities turning around.

  • Core portfolio performed strongly in a seasonally weak 4th quarter driven by strong volumes led by growth in BFSI, retail and manufacturing sectors. This gives the company a good momentum going into the new financial year.

  • Its investments in building high impact digital platforms are paying off. Digital revenue stood at over USD 2.3 billion.

  • The company has been heavily investing to augment its Digital practice across the areas of hiring niche and multi-skilled talent, leveraging its Digital learning platform across the organization to cover over 400 technologies for over 120,000 employees, building collaborative work spaces to foster innovation and building its own IP in Digital.

  • Digital revenue volume growth during the quarter was at 3.2% and digital revenue grew at 15.5%.

  • The company won 7 large deals across 6 verticals.

  • The company’s margin had taken a hit in the third quarter as it booked costs related to the Chennai floods in December.

  • It faced no slowdown in demand from the critical banking, financial services and insurance (BFSI) sector.

  • The company is building the right talent pool by training more than 120,000 TCSers in FY16 in over 400 new digital technologies to help customers drive adoption of digital in their enterprise.

  • 52% of TCS’ clients have been engaged on Digital services, across verticals.

  • During FY16, TCS’ seven cloud platforms saw 57% growth, reaching revenue of USD175m.

  • The company will continue to build on its trusted customer relationships and remain focused on helping them win in the new experience economy.

  • It will continue to invest in developing ‘digital’ talent and launch new products in emerging areas leveraging the Internet of Things, automation and machine learning.

  • It also look forward to intensifying its social initiatives to bring the benefits of technology to the community.

  • In FY16, the company balanced focus on delivering an industry leading financial performance with its ongoing investment program designed to capture evolving Digital demand.

  • It invested over $250M to support organic growth in its Digital businesses and in new markets, while maintaining profitability within desired range and generated strong operating cashflows as well.

  • In FY16 Digital revenues grew 52.2% due to faster adoption of digital solutions as customers moved to embrace a holistic digital transformation of the enterprise.

  • With its strong suite of products and solutions, extensive domain expertise and customer contextual knowledge, TCS captured significant customer opportunities with 15.5% of total revenues coming from Digital in Q4 led by Analytics & AI, cloud and mobility and channels.

  • Fourth quarter, considered seasonally weak, has seen good growth from all geographies as well as all verticals

  • Japan, India, Latin America are volatile geographies for the company.

  • Core geography US is coming back well for TCS.

  • Quarterly variations expected on the margin side but structurally margins are still strong. It expects the company to clock margin in range of 26-28% in FY17.

  • Most of headwinds are behind the company. In FY 2017 there are no major headwinds for the company. The on-going ones like US elections, currency fluctuations and oil prices are expected ones.

  • The company’s digital business is expected to surpass USD 5 billion target in next five years. It has seen some transformational deals in digital.

  • FY17 gross addition of employees will be lower.

  • The need is to up local hiring and increase productivity while mitigating evident risks.

  • US visa hike increase continues to remain a major issue.

  • The company has already given out 100% variable pay.

  • India crossed USD one billion milestone in annual revenue while overall revenue from new growth markets stood at USD 3.3 billion in FY16.

  • The company continued to hire to support business growth and employed 353,843 professionals globally from 129 nationalities including with 33.8% women professionals at the end of FY16. The attrition rate for IT services was 14.7% while overall it stood at 15.5% on an LTM basis.

  • In the past the management had clearly articulated that it is seeing good traction in the BFSI space. Its BFSI revenue, for the year, grew at 11.8% and BFS revenue grew at 14.8%. So arguably insurance was a drag last year and insurance has turned the corner, so that is an added confidence that it gets that the BFSI is going through well and it is going to be a strong year positive segment in BFSI.


I would like to draw your attention to the 21PEish levels its trading at ( in my opinion Rs 2000 would be a fair value for this stock so its slightly expensive currently @2600). The compounded profit growth of TCS is 21% ( data from screener) in the last ten years which is roughly equal to the compounded growth in the stock price across the same period. It has a dividend yield of 1.6% at current levels. There is no reason why it should not be able to grow its profit at the same levels i.e 20% & the stock price is expected to follow suit. Add the dividend yield & we are looking at a return of 20%+. Even if the profit growth were to fall down we are still realistically looking at a return of at least 15%. Not bad at all!

Tax demands increase TCS contingent liability by Rs 4k cr

In addition, Rs 6,227-cr claim by Epic Systems that the company has disputed and expects to defend, is also accounted as a contingent liability

Short Summary of Q3 conference call:

we have also prepared few other summaries. Sharing here:

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Any one participating in buy back offer? I don’t have a clue how to go about it. I received Tender Form and Letter of offer from TCS. I have an account with HDFC. Do I fill the Tender form and send it to address they have provided or do I need to go via HDFC?

Any help would be appreciated.

You need to fill the form for all the relevent details it asks for and then send it to the registar’s address.

If you are with HDFC securities, you can do online - I have done with ICICI securities but not sure about HDFC.
If you have any other broker, he will help you to do without any paper work

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