Tata Consultancy Services TCS - Results Update
TCS' Volumes de-grow by 2.7% on an organic basis; average realizations down 2% QoQ. In USD terms, the revenues de-grew by 3.4% QoQ. This was despite a contribution of about 4.49% from the CGSL consolidation. Thus, organically, revenues were lower by more than 7% QoQ.
Existing clients holding back projects, new wins along expected lines Volumes degrew as existing clients held back projects. TCS has exposure to several clients, which are facing revenue and profit falls on a yearly basis. These clients have held back most of the discretionary projects and this has increased the uncertainties for the company.
Pricing pressures continue
The management has indicated that, pricing pressures continued in 4QFY09. While clients have been demanding lower prices at the time of re-negotiation of contracts, the company has also faced several out-of-the-turn pricing negotiations. The budgets of several clients have been cut and they are looking at extracting cost benefits from vendors like TCS.
Bonus shares
The Board of TCS has recommended a bonus issue in the ratio of 1 : 1, subject to share-holders' approval. In addition to this, the management has also recommended a final dividend of rs.5 per share, taking the annual dividend to Rs.14 per share.
Valuations
Based on the existing share capital,EPS for FY10 works out to Rs.51.4, a marginal de-growth over FY09. Based on the DCF model incorporating a WACC of 13.6% and a terminal growth rate of 5%, the price target for TCS works out to Rs.597.
TCS' Volumes de-grow by 2.7% on an organic basis; average realizations down 2% QoQ. In USD terms, the revenues de-grew by 3.4% QoQ. This was despite a contribution of about 4.49% from the CGSL consolidation. Thus, organically, revenues were lower by more than 7% QoQ.
Existing clients holding back projects, new wins along expected lines Volumes degrew as existing clients held back projects. TCS has exposure to several clients, which are facing revenue and profit falls on a yearly basis. These clients have held back most of the discretionary projects and this has increased the uncertainties for the company.
Pricing pressures continue
The management has indicated that, pricing pressures continued in 4QFY09. While clients have been demanding lower prices at the time of re-negotiation of contracts, the company has also faced several out-of-the-turn pricing negotiations. The budgets of several clients have been cut and they are looking at extracting cost benefits from vendors like TCS.
Bonus shares
The Board of TCS has recommended a bonus issue in the ratio of 1 : 1, subject to share-holders' approval. In addition to this, the management has also recommended a final dividend of rs.5 per share, taking the annual dividend to Rs.14 per share.
Valuations
Based on the existing share capital,EPS for FY10 works out to Rs.51.4, a marginal de-growth over FY09. Based on the DCF model incorporating a WACC of 13.6% and a terminal growth rate of 5%, the price target for TCS works out to Rs.597.
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