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Tata Consultancy Services ( TCS ) : Today TCS announced its Q3 FY 2008- 2009 results. It recorded a 4.7% q-o-q growth in Top-line in 3QFY2009 primarily driven by the significant Rupee depreciation witnessed over the quarter (positive impact of 3.4% q-o-q). The company's net profit was up 7.17% and came in at Rs 1,352 crore versus 1261.5 crore and its revenues were up 4.65% at Rs 7,277 crore versus Rs 6,953.4 crore.The TCS management in a press conference said that growth in Q3 revenue was impacted by the rupee movement. However, in US Dollar terms, revenues dipped 5.8% q-o-q largely on account of the adverse cross-currency fluctuations witnessed over the quarter, with the British Pound, Euro, Australian Dollar and Brazilian Real all depreciating against the US dollar.
The rupee rate for TCS came in at Rs49.07 per dollar in 3QFY2009 as against Rs44.18 in 2QFY2009, higher by 11.1% q-o-q. Volumes grew by a subdued 2.4% q-o-q, reflecting the increasing pressures of the worsening business environment.
Factors that adversely impacted revenue growth during the quarter were a slight dip in pricing (0.1% q-o-q) and a shift in the effort mix to offshore (1.1% q-o-q). Offshore revenues grew, as a percentage of Sales, by 0.8%.
The management said that it has added 41 new clients and that its attrition rate was at 11.9%. The net added number of employees in Q3 is 8,692, it said. TCS reported that its PAT has gone up by Rs 41.53 crore due to lower depreciation charges. The staff utilisation rate excluding trainees is at 79.9% and the operating margins grew on (QoQ), TCS informed.
Owing to the margin expansion, the company recorded a 7.2% q-o-q rise in Bottom-line in 3QFY2009. Forex losses at Rs251 crore were almost similar to the previous quarter (Rs260 crore). On a y-o-y basis, bottomline grew by a mere 1.6%.
Over FY2008-10E, we expect TCS to record a 15.4% CAGR in topline, while bottomline is expected to clock a mere 6.2% CAGR.
S Ramadorai, CEO and Managing Director of Tata Consultancy Services, is expecting significant reduction in IT budgets from clients. He added that next fiscal would be even more challenging. TCS investors, he said, should look at long-term growth rather than quarterly results. He feels companies will revise guidance downward on poor macro environment.
Ramadorai added that clients are looking to cut costs and increase efficiency levels. He added that clients are not spending and are delaying their decisions and that their discretionary spending is going to be non-existent.
The management added that Nortel bankruptcy filing was surprising. It, however, added it would not be surprised to see few more bankruptcies like Nortel happen. They expect more volatility and see more challenges ahead. Also, they feel there will be more lay-offs in the US.
TCS feels that the Satyam situation is limited to single company and that would not harm the IT industry. The TCS management added that Satyam clients approached them and that no final transformation has been done yet.TCS is clear that they will not service any Satyam client at low price irrespective of volumes.
Broker Comment : Angel Broking - At the CMP, the stock is trading at 8.8x FY2010E EPS. While valuations appear reasonable, given the cautious short-term environment for growth and pricing and the below-par 3QFY2009 performance by TCS, we believe the stock is likely to trade lacklustre in the near-term.
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