RESULTS REVIEW 1QFY20 10 JUL 2019

Tata Consultancy Services

BUY
Buy the dip! INDUSTRY
CMP (as on 09 Jul 2019)
IT
Rs 2,133
We maintain BUY on TCS following a miss on revenue and  EBIT margin came at 24.2%, -94bps QoQ (-130bps
an inline margin performance. Our TP is Rs 2,420 at 24x adjusted for lease impact). 1Q margin was impacted by Target Price Rs 2,420
Jun-21E EPS, with ~2% cut in earnings estimates. wage increase, INR depreciation and increase in sub- Nifty 11,556
contracting (-30bps impact). We reckon that TCS’ Sensex 38,731
HIGHLIGHTS of the QUARTER
operational outperformance vs. peers will continue KEY STOCK DATA
 Revenue growth was 10.6% YoY CC (USD rev at supported by (1) Employee pyramid (30,000 fresher Bloomberg TCS IN
1.6/8.6% QoQ/YoY). Digital revenue (32.2% of rev) addition in FY20) and (2) Superior attrition metrics No. of Shares (mn) 3,752
grew 42% CC (48% in FY19) and has reached a (11.5% in 1Q). MCap (Rs bn) / ($ mn) 8,005/1,16,672
staggering USD 7bn annualised rate (2.5x in last 3 6m avg traded value (Rs mn) 6,386
years). STANCE: Excellence personified STOCK PERFORMANCE (%)
 Deal booking were healthy (on a YoY basis) with TCV of TCS’ growth, scale and durability are its key strengths. 52 Week high / low Rs 2,293/1,784
USD 5.7bn, +16% YoY with book-to-bill at 1.04x. We Growth in digital, momentum in deal wins and strong 3M 6M 12M
reckon that deal bookings in BFSI (25% YoY at USD 2bn) hiring trend are positive demand indicators. TCS’ offshore Absolute (%) 2.0 13.1 13.3
and Retail (USD 1bn) are indicative of recovery ahead. leverage in digital (location independent Agile Relative (%) 2.5 6.1 5.5
 Hiring momentum improved (indicative of medium- framework), outperformance in BFSI (vs. Accenture) and SHAREHOLDING PATTERN (%)
term demand outlook) with highest net addition in last superior execution (margin/attrition differential) stand Dec-18 Mar-19
five years. Growth continued to be led by UK/Europe out. We expect 10/9% rev/EPS CAGR over FY19-22E. Promoters 72.1 72.1
geo at 16/15% YoY CC. However, NorthAm decelerated Strong FCF generation (90% FCF/PAT), payout policy (80- FIs & Local MFs 7.7 7.8
to 7.7% YoY CC (vs. 9.9% in 4Q) impacted by slowdown 100% of FCF) and >4% FCF yield will support valuations. FPIs 15.8 15.8
in BFSI/Retail verticals. BFSI and Retail verticals grew Key risks include INR appreciation, adverse macros and Public & Others 4.5 4.4
9.2/7.9% YoY respectively and recovery is expected in increase in onsite workforce crunch. Pledged Shares 2.9 2.9
Retail vertical. Source : BSE
Financial Summary Apurva Prasad
YE March (Rs bn) 1QFY20 1QFY19 YoY (%) 4QFY19 QoQ (%) FY18 FY19 FY20E FY21E FY22E [email protected]
Net Revenues 381.72 342.61 11.4 380.10 0.4 1,231.04 1,464.63 1,602.91 1,784.21 1,958.69 +91-22-6171-7327
EBIT 92.20 85.78 7.5 95.37 (3.3) 305.02 374.50 394.30 449.11 498.38
Amit Chandra
APAT 81.31 73.40 10.8 81.26 0.1 258.26 314.72 329.73 369.23 408.21
[email protected]
Diluted EPS (Rs) 21.7 19.6 10.8 21.7 0.1 68.8 83.9 87.9 98.4 108.8
+91-22-6171-7345
P/E (x) 31.0 25.4 24.3 21.7 19.6
EV / EBITDA (x) 23.9 19.6 17.8 15.7 14.1 Akshay Ramnani
RoE (%) 30.1 36.1 36.1 38.5 40.0 [email protected]
Source: Company, HDFC sec Inst Research # Consolidated +91-22-6171-7334

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Quarterly Consolidated Financials Snapshot

Particulars (Rs bn) 1QFY20 1QFY19 YoY (%) 4QFY19 QoQ (%)
Net Revenues (USD mn) 5,485 5,051 8.6 5,397 1.6
Revenue came at USD
Net Revenues 381.72 342.61 11.4 380.10 0.4
5,485mn, 1.6/8.6% QoQ/YoY
Employee Expenses 208.09 185.48 12.2 201.79 3.1
led by strong growth in
Digital (+42.1 % YoY CC) SG&A and Other Operating Expenses 73.26 66.42 10.3 77.57 (5.6)
EBITDA 100.37 90.71 10.6 100.74 (0.4)
Depreciation 8.17 4.93 65.7 5.37 52.1
EBIT 92.20 85.78 7.5 95.37 (3.3)
Interest Cost 2.57 0.17 1,411.8 0.28 817.9
EBIT margin came at 24.2%, - Other Income 16.75 12.25 36.7 11.93 40.4
94bps QoQ impacted by PBT 106.38 97.86 8.7 107.02 (0.6)
unfavorable exchange rates Minority Interest 0.22 0.22 0.0 0.26 (15.4)
and higher employee cost Tax 24.85 24.24 2.5 25.50 (2.5)
RPAT 81.31 73.40 10.8 81.26 0.1
E/o (adj for tax) - - -
APAT 81.31 73.40 10.8 81.26 0.1
Source: Company, HDFC sec Inst Research
Adjusted for lease accounting
change, comparable EBIT Margin Analysis
margin for 1QFY20 is ~23.9% Particulars 1QFY20 1QFY19 YoY (bps) 4QFY19 QoQ (bps)
Employee Expenses % Net Revenues 54.5 54.1 38 53.1 143
SG&A and Other Expenses % Net Revenues 19.2 19.4 (19) 20.4 (122)
EBITDA Margin (%) 26.3 26.5 (18) 26.5 (21)
EBIT Margin (%) 24.2 25.0 (88) 25.1 (94)
Higher other income (due to Tax Rate (%) 23.4 24.8 (141) 23.8 (47)
forex gain) and lower ETR led APAT Margin (%) 21.3 21.4 (12) 21.4 (8)
to flat APAT (+0.1% QoQ) Source: Company, HDFC sec Inst Research

Page | 2
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

QoQ Revenue Growth Trajectory (%) YoY CC Revenue Growth Trajectory (%)
(%, QoQ) (%, YoY CC)
20
20
18

15.8
16 16

12.7
11.5
12.0
14

12.1
Deceleration in YoY CC

10.6
10.4
10.1
12 12
revenue growth from 4QFY19

9.9

9.3
8.6
10

7.5

7.2
7.1
7.0
8

6.3

6.2
8
6

3.9

3.2
3.7
3.5

3.2
3.1
3.0

2.8
4 4

1.6
1.6
1.5

1.5

1.0

0.7
0.3
0.3
2
0 0

1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20

1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
Downward pressure on EBIT
margin impacted by INR Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
appreciation and onsite
workforce crunch

EBIT Margin Trajectory (%) Digital % Of Revenue

(%) (%)

30 35
29 30
28 25
Digital stood at 32.2% of
27
revenue and grew 42.1% YoY 20
26

32.2
31.0
in CC terms

30.1
15

28.0
25.0
25

23.8
22.1
19.7
18.9
10

17.9
16.8
16.1
15.9
24

15.5
13.7
13.3
24.2

12.5
23 5
22 0

1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 3
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

TCS vs. Accenture: Revenue Growth (% YoY CC) TCS vs. Accenture: EBIT Margin (%) Trend
TCS superior to Accenture (%) TCS Accenture (%) TCS Accenture
(including inorganic) both in 14 12.7 30 26.5 25.6
terms of revenue growth and 25.1 25.2 25.4 25.0 25.1 24.2
12 11 11 10.6 23.4
10 10 25
EBIT margin profile 12.1
10 11.5
8 20
15.4 15.5
8 7
9.3
9.5
9 14.2 15.2 13.1 15.1 13.8 13.3
8.4 15
6 7.1 7.2 9.8
6.3 6.2 10
Accenture posted TTM 4
revenue of USD 42.6bn vs. 2 5
USD 21.3bn for TCS 0 0

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
TCS’ deal TCV in 1Q was USD
5.7bn (book-to-bill of 1.04 vs.
to book-to-bill of 1.05 for
FY19) TCS vs. Accenture: Deal TCV (USD bn) Trend TCS vs. Accenture: Deals Book to Bill (x) Trend
BFSI TCV was USD 2bn (book- (USD bn) TCS Accenture (x) TCS Accenture
to-bill of 1.18) and NorthAm 14 1.40
TCV was USD 2.8bn (book-to- 12 1.20
bill of 0.97)
10 1.00
8 0.80
11.80
11.75

1.15
6 0.60
10.83

1.13
1.12
10.60

1.10
10.19

1.04
1.03
0.97

0.96

0.95
0.94
4 0.40
6.2
5.9

5.7
4.9

4.9

Accenture’s deal TCV of USD 2 0.20

10.6bn included Consulting at 0 0.00
USD 6.0bn (book-to-bill of
1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20
0.96) and Outsourcing at USD
4.6bn (book-to-bill of 0.95)
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 4
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

TCS vs. Accenture: NorthAm Growth (% YoY) Trend TCS vs. Accenture: Europe Growth (% YoY) Trend
(%) (%) TCS UK TCS Continental Europe
TCS Accenture Accenture Europe
12 11.0 11.0
10.0 25
9.9
10 9.0 25.1
8.0 20 18.7 22.8
22.3 21.3
8 7.0 19.1 16
8.0 15 18.2 18.6 17.4
8.1 8.2 16.5 17.6 17.5
NorthAm growth rate of 6 7.7 11.0 10.0 15
4.0 7 10.0 9.0 8.0
Accenture is converging with 10 9.0
4 3.0 6.0 7.0
TCS while TCS continues to 3.6
4.9
9.2
10.7 5.0
3.5 5 8.2
outperform Accenture in 2
2.8 6.3
Europe 0 0

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

TCS posted superior growth in TCS vs. Accenture: BFSI Growth (% YoY) TCS vs. Accenture: Attrition (%)
BFSI (vs. Accenture) for the (%) TCS Accenture (%) TCS Accenture
past 4 qtrs 14 20 18.0 18.0
17.0
18
12 15.0 15.0 15.0 15.0
16
11.6 13.0 13.0
10 14
11.0
8 12
9.0 9.2
6.0 8.6 10 11.6 11.3 11.1
6 8.0
8 11 10.9 10.9 11.2 11.3 11.5
7.0
4 6.1 6
5.1 4.7
4.1 4.0 4
Stable and industry leading 2 0.2 2.9 3.0 1.0
2
attrition for TCS at 11.5% vs. 0 2.0 0
18% for Accenture
1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20
Source: Company, HDFC sec Inst Research, TCS BFSI reclassified Source: Company, HDFC sec Inst Research
from 1QFY20

Page | 5
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Vertical Revenue Break-up

BFSI (30.8% of rev) growth (% of revenue) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
was soft at 1.3% QoQ, some BFSI 32.5 32.6 31.6 31.1 31.1 31.2 30.8 30.9 30.8
challenges in NorthAm Regional Markets & Others 18.0 17.6 17.4 18.0 19.9 20.4 20.7 21.3 20.8
Retail & CPG 16.0 15.9 16.7 16.6 15.4 15.4 15.5 15.1 15.0
Capital markets and European
Manufacturing 7.4 7.4 7.5 7.4 10.2 9.8 9.8 9.6 9.8
Banks
Technology & Services 7.9 8.0 7.9 7.8 9.0 8.9 8.7 8.6 8.8
Life Sciences & Healthcare 7.1 7.2 7.3 7.2 7.3 7.5 7.6 7.7 7.9
Communication & Media 7.1 7.1 7.1 7.1 7.1 6.8 6.9 6.8 6.9
Energy & Utilities 4.0 4.2 4.5 4.8 NA NA NA NA NA
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Retail grew 1% QoQ, mgmt Source: Company, HDFC Sec Inst Research
positive on Retail in medium-
term despite quarterly Vertical-wise Revenue Growth
volatility (earlier impacted by (QoQ, %) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
BFSI NA NA NA NA NA 3.6 (0.6) 3.1 1.3
retail bankruptcies)
Regional Markets & Others NA NA NA NA NA 5.8 2.2 5.8 (0.8)
Retail & CPG NA NA NA NA NA 3.2 1.3 0.1 1.0
Manufacturing NA NA NA NA NA (0.8) 0.7 0.7 3.7
Technology & Services NA NA NA NA NA 2.1 (1.6) 1.6 4.0
Life Sciences & Healthcare NA NA NA NA NA 6.1 2.0 4.2 4.3
Manufacturing posted 3.7%
Communication & Media NA NA NA NA NA (1.1) 2.2 1.3 3.1
QoQ backed by strong
Energy & Utilities NA NA NA NA NA NA NA NA NA
demand from US, offset by Total 3.1 3.2 1.0 3.9 1.6 3.2 0.7 2.8 1.6
weak Auto sector in Europe Source: Company, HDFC Sec Inst Research

Vertical-wise Revenue Growth (Constant Currency)

(YoY, % CC) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
BFSI 5.1 4.7 0.2 2.9 4.1 6.1 8.6 11.6 9.2
Strong growth in Life sciences Regional Markets & Others 5.5 6.9 2.2 1.8 11.8 19.8 22.6 20.8 16.9
& Healthcare for the fourth Retail & CPG (3.4) (1.4) 3.0 8.4 12.7 15.6 10.5 9.9 7.9
consecutive quarter Manufacturing 10.2 9.6 9.5 8.6 6.9 6.9 6.7 9.2 5.5
Technology & Services 8.2 10.1 9.6 7.7 6.7 5.8 5.8 6.0 7.8
Life Sciences & Healthcare 10.7 10.3 13.5 12.6 12.1 14.7 15.7 18.2 18.1
Communication & Media 11.6 9.5 16.9 8.9 9.5 8.0 10.8 10.0 8.4
Energy & Utilities 20.3 22.7 29.4 33.7 30.9 22.2 18.1 11.3 NA
Total 6.3 7.1 6.2 7.2 9.3 11.5 12.1 12.7 10.6
Source: Company, HDFC Sec Inst Research, data reclassified from 1QFY20 thus time series YoY growth is not comparable
Page | 6
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Geographic Revenue Break-up

(% of revenue) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
Americas 54.6 54.1 54.2 52.2 52.9 53.1 53.2 52.7 52.4
North America 52.5 51.9 52.0 50.2 51.0 51.1 51.2 50.7 50.6
Latin America 2.1 2.2 2.2 2.0 1.9 2.0 2.0 2.0 1.8
Growth was led by India Europe 26.4 27.4 27.6 29.4 29.5 29.6 29.6 30.0 30.1
(6.0% of rev, +5.1% QoQ) and UK 13.9 14.0 14.1 15.2 15.5 15.6 15.5 15.9 15.8
Europe (30.1% of rev, +2.0% Continental Europe 12.5 13.4 13.5 14.2 14.0 14.0 14.1 14.1 14.3
QoQ) Asia-Pacific 9.5 9.8 9.5 9.7 9.6 9.6 9.4 9.5 9.4
India 7.0 6.3 6.3 6.2 5.8 5.6 5.7 5.8 6.0
Middle East and Africa 2.5 2.4 2.4 2.5 2.2 2.1 2.1 2.0 2.1
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Company, HDFC Sec Inst Research

Geographic Revenue Growth

(QoQ, %) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
Deceleration in YoY CC growth Americas 1.6 2.3 1.2 0.0 3.0 3.6 0.9 1.8 1.1
trend in NorthAm North America 1.6 2.0 1.2 0.3 3.2 3.4 0.9 1.8 1.4
Latin America 3.1 8.1 1.0 (5.6) (3.5) 8.7 0.7 2.8 (8.5)
Europe 6.8 7.1 1.8 10.6 1.9 3.6 0.7 4.2 2.0
UK 4.6 4.0 1.7 12.0 3.6 3.9 0.0 5.5 1.0
Continental Europe 9.2 10.7 1.8 9.3 0.2 3.2 1.4 2.8 3.1
Asia-Pacific 1.0 6.5 (2.1) 6.1 0.5 3.2 (1.4) 3.9 0.6
Europe has been strong India 6.2 (7.1) 1.0 2.2 (5.0) (0.3) 2.5 4.6 5.1
growth contributor for TCS in Middle East and Africa (0.8) (0.9) 1.0 8.2 (10.6) (1.4) 0.7 (2.1) 6.7
FY19 (+17.3% YoY) but YoY Total 3.1 3.2 1.0 3.9 1.6 3.2 0.7 2.8 1.6
Source: Company, HDFC Sec Inst Research
growth rate in UK and
continental Europe is now Geographic Revenue Growth (Constant Currency)
normalizing (YoY, % CC) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
North America 3.5 3.6 2.8 4.9 7.0 8.1 8.2 9.9 7.7
Latin America 8.0 13.6 5.4 5.0 5.2 6.8 7.6 16.2 6.4
UK 6.3 9.2 8.2 10.7 18.7 22.8 25.1 21.3 16.0
Continental Europe 16.5 18.2 22.3 19.1 18.6 17.4 17.6 17.5 15.0
Asia-Pacific 4.7 4.1 6.2 8.6 10.8 12.5 12.6 11.5 9.5
India 13.3 14.3 4.1 (2.3) (4.7) 7.4 9.7 11.3 15.9
Middle East and Africa 8.9 7.6 3.7 2.2 (3.6) (4.4) (3.3) (4.0) 6.4
Total 6.3 7.1 6.2 7.2 9.3 11.5 12.1 12.7 10.6
Source: Company, HDFC Sec Inst Research
Page | 7
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Client Metrics
(Nos) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
>$ 1 mn clients 905 933 941 963 978 989 996 1,008 1,014
>$ 5 mn clients 464 470 485 495 508 513 519 532 551
Large account performance
>$ 10 mn clients 322 328 337 350 355 365 370 371 384
was muted sequentially with
>$ 20 mn clients 190 196 203 207 206 213 211 215 219
no addition in >$ 100mn client
bucket and 1 addition in >$ >$ 50 mn clients 85 91 94 97 97 98 99 99 100
50mn client bucket >$ 100 mn clients 36 37 37 38 40 44 45 44 44
Source: Company, HDFC sec Inst Research

Page | 8
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Change In Estimates
Particulars Earlier estimates Revised estimates % change
FY20E
Revenue (USD mn) 23,108 22,931 (0.8)
Revenue (Rs bn) 1,614.81 1,602.91 (0.7)
EBIT (Rs bn) 401.61 394.30 (1.8)
EBIT margin (%) 24.9 24.6 (27)bps
EPS (Rs) 89.4 87.9 (1.7)

FY21E
Revenue (USD mn) 25,487 25,489 0.0
Revenue (Rs bn) 1,784.12 1,784.21 0.0
EBIT (Rs bn) 454.73 449.11 (1.2)
EBIT margin (%) 25.5 25.2 (32)bps
EPS (Rs) 100.4 98.4 (2.0)
Source: HDFC sec Inst Research

Key Assumptions
Particulars FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Volume Growth (%) 8.6 7.1 8.5 6.4 7.0 8.9 7.6
Pricing Change (%) (1.5) (0.8) 0.1 3.0 2.4 2.0 2.0
USD Revenue Growth (%) 7.1 6.2 8.6 9.6 9.6 11.2 9.8
USD/INR Rate 65.67 67.12 64.49 70.03 69.90 70.00 70.00
EBIT Margin (%) 26.5 25.7 24.8 25.6 24.6 25.2 25.4
Source: Company, HDFC Sec Inst Research

Page | 9
 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Peer Set Comparison

EPS (Rs) P/E (x) RoE (%)
MCap CMP TP
Company RECO
(Rs bn) (Rs) (Rs) FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E

TCS 8,005 2,133 2,420 BUY 68.8 83.9 87.9 98.4 31.0 25.4 24.3 21.7 30.1 36.1 36.1 38.5
Infosys 3,113 716 775 NEU 33.8 36.4 37.6 42.1 21.1 19.7 19.0 17.0 22.0 24.4 24.7 26.5
Wipro 1,514 266 255 SELL 14.0 15.8 16.7 17.9 18.9 16.8 15.9 14.9 16.5 17.3 17.0 17.0
HCL Tech 1,421 1,021 1,305 BUY 64.7 74.6 78.2 89.9 15.8 13.7 13.0 11.4 25.3 26.0 24.0 24.3
TechM 595 676 650 SELL 43.2 48.9 48.1 53.1 15.6 13.8 14.1 12.7 21.5 22.0 20.4 20.7
Tier-1 IT Median 18.9 16.8 15.9 14.9 22.0 24.4 24.0 24.3

LTI 278 1,601 2,171 BUY 66.9 87.3 88.5 105.6 23.9 18.3 18.1 15.2 33.2 34.6 28.8 29.1
Mphasis 175 943 1,360 BUY 45.4 57.7 60.5 73.0 20.7 16.3 15.6 12.9 14.6 20.0 20.3 21.7
LTTS 172 1,658 2,020 BUY 45.5 68.0 74.8 96.7 36.4 24.4 22.2 17.1 27.7 32.0 28.6 30.7
Mindtree 127 772 930 NEU 32.3 44.2 47.1 55.7 23.9 17.5 16.4 13.9 21.4 24.9 23.0 24.6
Hexaware * 105 355 440 BUY 16.8 19.6 20.9 26.0 21.2 18.1 17.0 13.6 26.6 26.5 24.3 26.1
Cyient 61 540 605 NEU 38.6 43.6 48.2 51.2 14.0 12.4 11.2 10.5 18.1 19.5 19.9 18.9
Zensar 56 248 315 BUY 10.6 13.8 15.8 19.1 23.4 18.0 15.7 13.0 15.1 17.0 16.9 17.8
Tata Elxsi 53 854 990 NR 38.5 46.6 45.8 52.4 22.2 18.3 18.6 16.3 37.0 34.5 27.6 26.5
Persistent 49 615 655 NEU 40.6 45.9 44.9 48.5 15.2 13.4 13.7 12.7 16.0 15.7 14.5 14.3
Sonata 37 359 495 BUY 18.6 24.0 27.0 30.2 19.3 15.0 13.3 11.9 31.0 35.1 34.3 34.0
Intellect 33 265 325 BUY 3.7 8.1 10.6 15.0 NM 32.8 24.9 17.7 6.7 11.1 12.3 15.0
eClerx 26 679 750 NEU 74.1 61.7 60.9 67.3 9.2 11.0 11.1 10.1 24.1 17.6 16.5 18.3
Majesco 16 554 730 BUY (1.5) 18.3 26.3 34.4 NM 30.2 21.1 16.1 NM 8.4 10.4 12.2
HGS 13 640 900 NR 96.5 84.6 106.2 120.7 6.6 7.6 6.0 5.3 14.3 11.3 12.7 13.0
Mastek 11 462 635 BUY 27.8 40.6 43.8 49.8 16.6 11.4 10.5 9.3 13.7 16.1 14.6 14.8
Tier-2 IT Median 20.7 17.5 15.7 13.0 19.8 19.5 19.9 18.9

MCap CMP EPS (USD) P/E (x) RoE (%)

Company TP RECO
(USD bn) (USD) FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
Accenture 117 190 NA NR 5.6 6.5 7.3 8.0 34.2 29.5 26.1 23.9 41.7 42.0 41.5 40.1
Cognizant 36 64 NA NR 2.5 3.6 3.8 4.3 25.2 17.8 17.1 15.0 14.1 19.0 16.7 19.3
Capgemini^ 21 114 NA NR 4.9 4.4 6.5 7.1 23.3 26.0 17.5 15.9 11.5 10.1 13.3 13.4
Global IT Median 25.2 26.0 17.5 15.9 14.1 19.0 16.7 19.3
Source: HDFC sec Inst Research, Bloomberg, *Dec YE, ^CMP and EPS in EUR terms

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 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Consolidated Income Statement Consolidated Balance Sheet

Year ending March (Rs bn) FY18 FY19 FY20E FY21E FY22E Year ending March (Rs bn) FY18 FY19 FY20E FY21E FY22E
Net Sales (USD mn) 19,089 20,913 22,931 25,489 27,981 SOURCES OF FUNDS
Growth (%) 8.6 9.6 9.6 11.2 9.8 Share Capital - Equity 1.91 3.75 3.75 3.75 3.75
Net Sales 1,231.04 1,464.63 1,602.91 1,784.21 1,958.69 Reserves 849.37 890.71 927.75 981.78 1,052.27
Growth (%) 4.4 19.0 9.4 11.3 9.8 Total Shareholders' Funds 851.28 894.46 931.50 985.53 1,056.02
Employee Expenses 663.96 782.46 873.46 971.91 1,065.62 Minority Interest 4.02 4.53 5.71 6.71 7.82
SG&A and Other Operating Expenses 241.92 287.11 303.03 329.83 360.13 Total Debt 2.35 0.44 0.44 0.44 0.44
EBIDTA 325.16 395.06 426.42 482.47 532.95 Net Deferred Taxes (22.79) (16.14) (16.14) (16.14) (16.14)
Depreciation 20.14 20.56 32.12 33.36 34.57 Long Term Provisions & Others 17.14 18.74 18.74 18.74 18.74
EBIT 305.02 374.50 394.30 449.11 498.38 TOTAL SOURCES OF FUNDS 852.00 902.03 940.25 995.28 1,066.88
EBIT (%) 24.8 25.6 24.6 25.2 25.4 APPLICATION OF FUNDS
EBIT Growth (%) 0.6 22.8 5.3 13.9 11.0 Net Block 102.16 104.11 129.05 138.25 146.19
Other Income 36.42 43.11 50.09 46.82 49.18 CWIP 12.78 9.63 9.63 9.63 9.63
Interest 0.52 1.98 7.70 6.85 6.85 Goodwill & Other Intangible
17.57 18.79 19.83 19.40 19.80
Assets
PBT 340.92 415.63 436.68 489.08 540.71
Investments 3.01 2.39 2.39 2.39 2.39
Tax (incl deferred) 82.12 100.01 106.06 118.85 131.40
Other non-current assets 79.77 65.69 66.06 66.54 67.01
Minority Interest and associate profit 0.54 0.90 0.89 1.00 1.10
Total Non Current Assets 215.29 200.61 226.95 236.22 245.03
RPAT 258.26 314.72 329.73 369.23 408.21
Cash & Equivalents 428.68 419.39 411.83 432.12 470.39
APAT 258.26 314.72 329.73 369.23 408.21 Debtors 250.37 274.41 300.23 334.08 366.66
APAT Growth (%) (1.8) 21.9 4.8 12.0 10.6 Other Current Assets 134.13 228.46 233.33 239.71 245.86
EPS (Rs) 68.8 83.9 87.9 98.4 108.8 Total Current Assets 384.50 502.87 533.56 573.79 612.51
EPS Growth (%) (1.8) 21.9 4.8 12.0 10.6 Creditors 50.94 62.92 68.86 76.65 84.14
Source: Company, HDFC sec Inst Research
Other Current Liabilities & Provns 125.53 157.92 163.23 170.20 176.90
Total Current Liabilities 176.47 220.84 232.09 246.85 261.05
Net Current Assets 208.03 282.03 301.46 326.94 351.47
TOTAL APPLICATION OF FUNDS 852.00 902.03 940.25 995.28 1,066.88
Source: Company, HDFC sec Inst Research

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 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

Consolidated Cash Flow Key Ratios

Year ending March (Rs bn) FY18 FY19 FY20E FY21E FY22E FY18 FY19 FY20E FY21E FY22E
Reported PBT 340.92 415.63 436.68 489.08 540.71 PROFITABILITY (%)
Non-operating & EO items (32.73) (30.97) (37.92) (35.44) (37.23) EBITDA Margin 26.4 27.0 26.6 27.0 27.2
Interest expenses 0.52 1.98 7.70 6.85 6.85 APAT Margin 21.0 21.5 20.6 20.7 20.8
Depreciation 20.14 20.56 32.12 33.36 34.57 RoE 30.1 36.1 36.1 38.5 40.0
Working Capital Change (2.09) (21.69) 13.94 (11.91) (30.21) RoIC or Core RoCE 37.5 46.3 47.1 52.3 55.4
RoCE 30.2 36.1 36.4 38.7 40.1
Tax paid (76.09) (99.58) (106.06) (118.85) (131.40)
EFFICIENCY
OPERATING CASH FLOW ( a ) 250.67 285.93 346.46 363.08 383.29
Tax Rate (%) 24.1 24.1 24.3 24.3 24.3
Capex (18.62) (22.31) (57.05) (42.57) (42.51)
Fixed Asset Turnover (x) 5.4 6.0 5.5 5.8 6.2
Free cash flow (FCF) 232.05 263.62 289.41 320.51 340.77
Debtors (days) 74 68 68 68 68
Investments (0.43) (0.62) - - -
Other Current Asset (days) 40 57 53 49 46
Non-operating income 32.73 30.97 37.92 35.44 37.23
Payables (days) 15 16 16 16 16
INVESTING CASH FLOW ( b ) 13.68 8.04 (19.13) (7.13) (5.28)
Other Current Liab & Prov (days) 37 39 37 35 33
Debt Issuance (0.36) (1.91) - - -
Cash Conversion Cycle (days) 62 70 69 67 66
Interest expenses (0.52) (1.98) (7.70) (6.85) (6.85) Net Debt/EBITDA (x) (0.8) (0.7) (1.0) (0.9) (0.9)
FCFE 231.17 259.73 281.70 313.67 333.93 Net Debt/Equity (x) (0.3) (0.3) (0.4) (0.4) (0.4)
Share capital Issuance - - - - - Interest Coverage (x) 587 189 51 66 73
Dividend/buyback (268.02) (275.17) (292.69) (315.20) (337.71) PER SHARE DATA
FINANCING CASH FLOW ( c ) (268.90) (279.06) (300.39) (322.05) (344.56) EPS (Rs/sh) 68.8 83.9 87.9 98.4 108.8
NET CASH FLOW (a+b+c) (4.55) 14.91 26.94 33.91 33.44 CEPS (Rs/sh) 74.2 89.4 96.4 107.3 118.0
Closing Cash & Equivalents 428.68 419.39 411.83 432.12 470.39 DPS (Rs/sh) 26.0 24.0 65.0 70.0 75.0
Source: Company, HDFC sec Inst Research BV (Rs/sh) 227 238 248 263 281
VALUATION
P/E 31.0 25.4 24.3 21.7 19.6
P/BV 9.4 8.9 8.6 8.1 7.6
EV/EBITDA 23.9 19.6 17.8 15.7 14.1
OCF/EV (%) 3.2 3.8 4.1 4.7 5.2
FCF/EV (%) 3.0 3.6 3.3 4.1 4.6
FCFE/mkt cap (%) 2.9 3.4 3.1 3.8 4.3
Dividend Yield (%) 1.2 1.1 3.0 3.3 3.5
Source: Company, HDFC sec Inst Research

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 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

RECOMMENDATION HISTORY
Date CMP Reco Target
TCS TP
6-Jul-18 1,913 NEU 1,720
11-Jul-18 1,875 BUY 2,130
2,400
10-Oct-18 2,044 BUY 2,400
30-Nov-18 1,959 BUY 2,400
2,200
8-Jan-19 1,894 BUY 2,460
11-Jan-19 1,889 BUY 2,430
2,000
1-Apr-19 2,002 BUY 2,385
1,800 9-Apr-19 2,070 BUY 2,385
13-Apr-19 2,014 BUY 2,410
1,600 5-Jul-19 2,163 BUY 2,470
10-Jul-19 2,133 BUY 2,420
1,400 Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Dec-18
Oct-18
Aug-18

Apr-19
Nov-18

Jan-19
Sep-18

Feb-19

May-19
Jun-19
Jul-18

Jul-19
Mar-19

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

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 TATA CONSULTANCY SERVICES: RESULTS REVIEW 1QFY20

HDFC securities
Institutional Equities
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Senapati Bapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171-7330 www.hdfcsec.com

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