TataConsultancyServices

Commentarystable,Seasonalitytoimpactquarter
December18,2012 Shashi Bhusan shashibhusan@plindia.com +91-22-66322300 Pratik Shah pratikshah@plindia.com +91-22-66322256 Rating Price Target Price Implied Upside Sensex Nifty (PricesasonDecember17,2012) Tradingdata Market Cap. (Rs bn) Shares o/s (m) 3M Avg. Daily value (Rs m) Majorshareholders Promoters Foreign Domestic Inst. Public & Other StockPerformance (%) 1M 6M Absolute (6.3) (5.3) Relative (11.4) (18.8) HowwedifferfromConsensus EPS(Rs) PL Cons. 2013 70.0 69.3 2014 78.2 76.5 Accumulate Rs1,206 Rs1,400 16.1% 19,244 5,858

~3% negative impact due to lower working days and furloughs: According to the management, the quarter will be impacted by lower working days (1 day) and furloughs (~1.5 days). 1) Q3 generally witnesses furloughs from Hi-tech, manufacturing and telecom clients. 2) BFSI also witnesses furloughs in the quarter. However, the furloughs are not an indication of any budget cuts. 3) Lower growth in Europe due to weakness in telecom vertical 4) North America likely to deliver positive volume growth despite usual headwinds including Sandy 5) In terms of service line, the growth is likely to be evenly poised. 6) There is no pricing pressure, but didnt rule out volume discount. Grossadditionlikelytobelower,butfresheradditionstrong: The company is will have weak laterals additions but strong fresher additions. The management does not expect any spill-over in fresher addition to FY14. Moreover, guidance for FY14 fresher addition of 25k is retained. Also, the supply-side constraint will continue pushing subcontracting cost but at a slower pace. Margindeclinetocontinue,butstrictvigilon27%operatingmarginguidance: The management expects decline in margin due to lower working days, higher fresher intakes and forex movement. However, they reiterated their goal of 27% EBIT margin. The management was confident of recouping margin in Q4FY13. Q2FY13 & Q1FY13 operating margins were 26.8% and 27.5%, respectively. Taxratestable,forexlossduetopremiumchargedforoption: The hedging loss for Q3FY13 is likely to be Rs340-350m, compared to gain of Rs130m in Q2FY13. There will be positive asset translation impact in the quarter due to currency movement. Tax rate for the quarter is likely to be stable. Valuation&Recommendation: We retain our Accumulate rating.
Keyfinancials(Y/eMarch) Revenues (Rs m) Growth(%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth(%) Net DPS (Rs) Profitability&Valuation EBITDAmargin(%) RoE(%) RoCE(%) EV / sales (x) EV / EBITDA (x) PE (x) P / BV (x) Netdividendyield(%) Source:CompanyData;PLResearch 2011 373,245 24.3 111,984 91,395 46.7 39.3 23.3 2011 30.0 39.4 38.6 6.2 20.6 25.8 9.3 1.9 2012 488,938 31.0 144,176 106,441 54.4 16.5 19.8 2012 29.5 36.7 35.1 4.7 16.0 22.2 7.3 1.6 2013E 629,467 28.7 178,881 136,991 70.0 28.7 25.0 2013E 28.4 37.0 37.1 3.6 12.7 17.2 5.7 2.1

2,359.4 1,957.2 1679 73.98% 14.63% 6.71% 4.68% 12M 5.8 (18.4) %Diff. 1.1 2.2

PricePerformance(RIC:TCS.BO,BB:TCSIN)
(Rs) 1,600 1,400 1,200 1,000 800 600 400 200 0

2014E 704,834 12.0 198,814 153,088 78.2 11.8 28.0 2014E 28.2 33.0 33.4 3.2 11.2 15.4 4.6 2.3

Dec-11

Feb-12

Source:Bloomberg

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

Dec-12

Jun-12

Aug-12

Apr-12

Oct-12

AnalystMeetUpdate

We attended Tata Consultancy Services (TCS) Sell Side Analysts Meet on December 17, 2012. The management retained its stance on a stable outlook for FY13. However, Q3FY13 performance is likely to be impacted by lower number of working days and furloughs. The company didnt share median consensus expectationforthequarter.Wetweakourmodelforhighertaxrate,hencerevise ourtargetpricetoRs1,400(fromRs1,450).

Tata Consultancy Services

IncomeStatement(Rsm) Y/eMarch 2011
NetRevenue Raw Material Expenses Gross Profit Employee Cost Other Expenses EBITDA Depr. & Amortization Net Interest Other Income ProfitbeforeTax Total Tax ProfitafterTax Ex-Od items / Min. Int. Adj.PAT Avg.SharesO/S(m) EPS(Rs.) 373,245 204,296 168,949 56,965 111,984 7,214 (4,229) 9,553 114,324 21,739 92,585 (1,190) 91,395 1,957.2 46.7

2012
488,938 264,580 224,358 80,182 144,176 9,035 4,041 139,181 31,688 107,493 (1,052) 106,441 1,957.2 54.4

2013E
629,467 358,421 271,046 92,165 178,881 11,327 (9,206) 10,756 178,310 40,120 138,190 (1,200) 136,991 1,957.2 70.0

2014E
704,834 400,478 304,357 105,542 198,814 13,029 (11,744) 13,512 199,297 44,842 154,455 (1,367) 153,088 1,957.2 78.2

BalanceSheetAbstract(Rsm) Y/eMarch 2011

Shareholder's Funds Total Debt Other Liabilities TotalLiabilities Net Fixed Assets Goodwill Investments Net Current Assets Cash&Equivalents OtherCurrentAssets CurrentLiabilities Other Assets TotalAssets 254,155 380 13,742 268,278 51,996 34,064 18,390 105,726 47,350 116,406 58,030 58,101 268,278

2012
325,233 1,154 16,428 342,815 64,548 34,929 14,781 153,217 59,879 162,514 69,175 75,340 342,815

2013E
414,494 1,154 16,428 432,075 79,659 34,929 14,781 227,367 87,365 215,794 75,793 75,340 432,075

2014E
514,147 1,154 16,428 531,729 96,233 34,929 14,781 310,446 131,549 251,642 72,745 75,340 531,729

CashFlowAbstract(Rsm) Y/eMarch
C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash FCFF FCFE

2011
69,148 (18,663) (13,384) 37,101 10,249 47,350 60,567 60,836

2012
75,440 (29,498) (1,602) 44,341 15,538 59,878 57,921 58,694

2013E
102,855 (26,438) (48,930) 27,487 59,878 87,365 75,218 75,218

2014E
128,588 (29,603) (54,802) 44,183 87,365 131,549 97,618 97,618

QuarterlyFinancials(Rsm) Y/eMarch Q1FY12

NetRevenue EBITDA %ofrevenue Depr. & Amortization Net Interest Other Income ProfitbeforeTax Total Tax ProfitafterTax Adj.PAT 107,970 30,310 28.1 2,049 2,886 31,147 7,063 23,803 23,803

Q2FY12
116,335 33,829 29.1 2,286 997 32,540 7,913 24,390 24,390

Q4FY12
132,594 39,116 29.5 2,397 1,078 37,796 8,174 29,382 29,382

Q2FY13
156,208 44,404 28.4 2,615 (2,264) 3,103 44,892 9,443 35,396 35,396

KeyFinancialMetrics Y/eMarch Growth

Revenue (%) EBITDA (%) PAT (%) EPS (%)

2011
24.3 29.0 39.3 39.3

2012
31.0 28.7 16.5 16.5

2013E
28.7 24.1 28.7 28.7

2014E
12.0 11.1 11.8 11.8 28.2 21.7 33.4 33.0 (0.3) 15.4 4.6 11.2 3.2 22.5 6.8 8.0 63.8

KeyOperatingMetrics Y/eMarch
Volume (persons month) Pricing (US$ / Hr) Currency (USDINR) SW Devp. Cost (% of Sales) SG&A (% of Sales) Revenue (US$ m) EBITDA Margin Expansion/(Erosion) (bps) Tax Rate (%) Source:CompanyData,PLResearch.

2011

2012

2013E

2014E

1,588,419 1,968,865 2,283,883 2,603,627 33.5 33.9 33.5 34.1 45.6 48.1 54.0 52.0 54.7 54.1 56.9 56.8 15.3 16.4 14.6 15.0 8,186 110 19.0 10,171 (52) 22.8 11,657 (107) 22.5 13,555 (21) 22.5

Profitability
EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%) 30.0 24.5 38.6 39.4

29.5 21.8 35.1 36.7

28.4 21.8 37.1 37.0

BalanceSheet
Net Debt : Equity Net Wrkng Cap. (days) (0.2)

(0.2)

(0.2)

Valuation
PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x) 25.8 9.3 20.6 6.2

22.2 7.3 16.0 4.7

17.2 5.7 12.7 3.6

EarningsQuality
Eff. Tax Rate 19.0 Other Inc / PBT 8.4 Eff. Depr. Rate (%) 8.6 FCFE / PAT 66.6 Source:CompanyData,PLResearch.

22.8 2.9 8.5 55.1

22.5 6.0 8.5 54.9

December 18, 2012

Tata Consultancy Services

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 RatingDistributionofResearchCoverage

60%

53.7%

%ofTotalCoverage

50% 40% 30% 20% 10% 0% BUY Accumulate Reduce

20.7%

24.8%

0.8% Sell

Accumulate Sell TradingSell UnderReview(UR) : : : : Outperformance to Sensex over 12-months Over 15% underperformance to Sensex over 12-months Over 10% absolute decline in 1-month Rating likely to change shortly

PLsRecommendationNomenclature
BUY Reduce TradingBuy NotRated(NR) : : : :

Over 15% Outperformance to Sensex over 12-months Underperformance to Sensex over 12-months Over 10% absolute upside in 1-month No specific call on the stock

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

December 18, 2012