X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
TCS: The first impression! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 14, 2004

    TCS: The first impression!

    Performance Summary
    TCS announced its results yesterday, reporting strong YoY growth for the first half of FY05. Noticeably, the company has crossed the US$ 1 bn revenue mark in the first half itself. However, relatively higher rise on the expenditure front has led to a dip in operating margins.

    Financial performance (US GAAP Consolidated): A snapshot
    (Rs m) 1HFY04 1HFY05 Change
    Sales 32,191 45,643 41.8%
    Expenditure 24,339 35,893 47.5%
    Operating profit (EBIT)** 7,852 9,749 24.2%
    Operating profit margin (%) 24.4% 21.4%  
    Other income 215 1,634 661.3%
    Profit before tax 8,067 11,383 41.1%
    Equity in net earnings of affiliates 73 16 -78.1%
    Minority interest (55) (144)  
    Tax 1,259 2,525 100.6%
    Profit after tax/(loss) 6,826 8,730 27.9%
    Net profit margin (%) 21.2% 19.1%  
    No. of shares 455.5 480.1  
    Diluted earnings per share* (Rs) 28.4 36.4  
    P/E ratio (x)   30.2  
    * annualised; ** including depreciation

    What is the company’s business?
    TCS is the largest software company in Asia and has the distinction of becoming the first Indian software company to have cross the coveted US$ 1 bn revenue mark (in FY03). The company has a wide range of offerings and caters to industries like BFSI, manufacturing, telecom, and retail. TCS was one of the pioneers of the much-acclaimed global delivery model and has the largest employee base in the Indian software sector.

    What has driven performance?

  • Volume growth drives revenues: Stable billing rates and strong growth in volumes has helped TCS report a robust topline growth for both 2QFY05 and 1HFY05. For the second quarter, revenues and profits have grown sequentially by 14% each, which is almost at par with sequential growth numbers reported by its peer, Infosys. While no specific details are available, as per the US GAAP consolidated numbers, we believe that a strong growth in consultancy revenues (around 95% of revenues) have helped topline growth for TCS. The company added 52 clients in the quarter.

  • Employee additions suppress margins: A relatively stronger rise in cost of revenues has led to a fall in TCS’ margins in the first half. The company hired a net of 3,974 employees during this period and this seems to have resulted in a rise in cost of revenues. Notably, in the last five quarters, this is the fastest addition to manpower and indicates a strong demand growth that the company is anticipating in the future. However, due to the fact that TCS continues to derive a large portion (63%) of its revenues from onsite services, margins might be further impacted going forward.

  • Net profits: Apart from the fall in operating margins, a high tax liability has lowered net profit growth during 1HFY05. However, a large rise on the other income front seems to have balanced the equation.

    What to expect?
    At the current price of Rs 1,098, the stock is trading at a P/E multiple of 30.2 times annualised 1HFY05 earnings. While valuations look stretched from a medium term perspective when compared to Infosys, the fact that TCS is likely to be one of the key beneficiaries of the outsourcing opportunity cannot be ignored.

     

     

    Equitymaster requests your view! Post a comment on "TCS: The first impression!". Click here!

      
     

    More Views on News

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    TCS: A Dull End to the Year (Quarterly Results Update - Detailed)

    Apr 21, 2017

    Client specific issues result in a dull end to FY17.

    Tata Consultancy Services (TCS): A Strong Performance (Quarterly Results Update - Detailed)

    Jan 13, 2017

    Tata Consultancy Services (TCS) has declared results for the quarter ended December 2016. The company has reported a 1.5% QoQ increase in consolidated sales while the consolidated net profit was up 0.9% QoQ.

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
  •  

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TCS SHARE PRICE


    Aug 22, 2017 (Close)

    TRACK TCS

    TCS - KINGDEE INTER. COMPARISON

    Compare Company With Charts

    COMPARE TCS WITH

    MARKET STATS