TCS Q1 FY'09 - Hit by BFSI

TCS Q1 FY’09 – HIGHLIGHTS
The consolidated operating revenue of the company grew 24.3% INR 6410.70
Crore vis-à-vis Q1 FY’08 aided by:

• Growth in BFSI (Banking Financial services & Insurance), Telecom and Retail segments.
• Growth in new services like BPO, global consulting, infrastructure & assurance services.
• Tapping new deals wins and key clients.
  

Other Financial indicators:

• On a sequential quarter basis, revenue growth stood at 6% q-o-q comprising 6.7% growth in international business and 1% de-growth in domestic business.The volume growth in Q1 FY09 was impacted by material revenue decline from two large BFSI clients. Unanticipated decline in business from a large banking customer and dip in products business due to decision making delays by clients depressed volume growth.
• The operating margins declined by 490bps to 23.14% vis-à-vis the corresponding period under review. This was despite the implementation of salary hikes during the quarter and the negative impacts from softer pricing, lower utilization and onsite revenue shift.This resulted in operating profit growing at 2.56% to INR 1483.25 crore.
• Other income increased 119.79% vis-à-vis Q1 FY’08 to INR 119.74 crore. This had aided PBIDT to increase by 6.82% to INR 1602.99 crore.
• The subject’s Provision for taxation, including current, fringe benefit tax and deferred tax was up 16.70% at INR 184.44 crore. However, TCS had expended lower Depreciation expense at INR 112.2 crore which is 10.40% lower than the corresponding period under review. This had there fore resulted in TCS reporting profit after tax of INR 1290.61 crores which is marginally higher by 7.29% vis-à-vis the corresponding period under review.
  

OTHER DEVELOPMENTS

• During the quarter, TCS added 35 more clients totaling to 885 active clients (904 in sequential quarter) with % repeat business at 99.3% (94.3% in sequential quarter).
  TCS bagged 12 large deals in the quarter of which 3 deals were in US$ 75 – 100 million range.
• TCS added gross 8982 employees (net 4895 employees) of which trainees were 4495,
  2905 experienced professionals and 1582 associates in overseas subsidiaries &
  branches making a total workforce of 116,308 employees. The utilization rate for the
  quarter was down 80bps at 78.3% (excluding trainees) and if the trainees head count is included the utilization rate is further down by 120bps at 74.6%. This means that out of every 100 employees, TCS utilizes services of only 75 people. Watch this indicator to understand the impact of US slowdown on infotech players.
• The attrition rate up 20bps at 12.8%: 12.1% in IT services and 20.5% in BPO. For FY09, the Company plans to add 30000-35000 people with offers made for 22450.
  

As far as client concentration goes top client contributed 6.2%, top 5clients at 18.5% and top 10 clients at 28.3%, indicating a fairly diversified portfolio. TCS has 21 (19 in sequential quarter) clients above the US$ 50 million mark with 7 (7 in sequential quarter) clients above US$ 100 million.

At the current market price of Rs 813.45 stock is trading at 15.84x P/E and 7.30xP/BV FY08 and as per market estimates for FY09E at 13.67x P/E and 4.85 P/BV. Q2 FY09 is likely to be a better quarter for the company with improved growth outlook in the two troubled BFSI clients and as also indicated by healthy hiring in Q1 FY09.

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