Company Report | Q2FY12 Result Update

LONG TERM INVESTMENT CALL

18 October 2011 Industry CMP (INR) Target (INR) Upside / Downside 52 week High / Low (INR) Market Cap (INR bn) 3M Avg. Daily Volumes P / E (FY12 E) Shareholding Pattern (%)
DIIs 8% Others 5% Promoters 74%

HOLD

IT / ITES 1120 1200 7.1% 1247/902.9 220.872 2296.73 21.3x

High Utilization Levels, Strong Volume Growth drive Q2 Performance

Tata Consultancy Services Ltd. (TCS) has delivered a good performance for the second quarter. High utilization levels and increase in volume growth have contributed to a good performance for the quarter. Strong Volume Growth: TCS reported top-line and bottom-line numbers which were slightly below with our estimates. Revenue at INR 116.33 bn was up 25% and 7.7% on a YoY and a QoQ basis respectively. EBITDA for the quarter stood at INR 33.84 bn, up 22% from the same quarter in the previous year. TCS saw robust volume growth of 6.25% this quarter. The international revenue grew by ~7.3%. Pricing however remained flat. Offshore revenue stood at 50.9%, Onsite revenue stood at 45.2% while Delivery Center Revenues (GDC / RDC) was 3.9% of total revenue. Utilization excluding trainees was at an impressive 83.1%. If we include trainees, utilization was still high at 76.4%, despite the company adding to its bench strength. The company added 12,580 employees (net) in this quarter, taking the total employee base to 214,770. Attrition stood at 12.5% in Q2FY12. New deals in the quarter: TCS added 35 new clients in the quarter and the number of active clients stands at 1010. TCS signed 10 new USD 100 mn clients this quarter, with 5 clients from North America, 4 fro Europe/UK and 1 client from Latin America. From a domain perspective, BFSI, Insurance and Telecom saw 2 new deals each and High-Tech, Retail, Pharma and Energy saw 1 new deal each this quarter.

FIIs 13%

1 Year Stock Chart

140 130 120 110 100 90 80 70 60 50 40 Dec Aug Nov May Feb Mar Apr Sep Jan Jun Jul Oct Oct TCS Nifty

Performance across Industry Verticals & Geographies: BFSI segment grew 24.4% Retail & Distribution grew 39.3% while Manufacturing grew 32.1% on a sequential YoY basis. Apart from the Indian and Latin

Stock Performance 1 Month 11.7% 2.4% 3 Months 0.9% -8.3% 1 Year 15.0% -16.9%
(INR in mn)

American markets all other geographies grew well this quarter. North America and Continental Europe grew by 24.5% and 38.5% respectively on a YoY basis. Deal Pipeline looking good: The deal pipeline for the next few quarters looks good and the company has not witnessed any visible signs of slowdown or cut back in spending budgets from their clients in either North America or Europe. The deal signings are on track despite the uncertainty in the macro environment. The company continues to maintain a positive outlook in the BFSI space which contributed to 43.5% of the revenue for the quarter.

TCS Nifty

Particulars Total Income EBITDA Reported PAT

Actual 116,334 33,841 23,010

Estimates 117,356 35,207 25,232

* Source: Bloomberg, Unicon Research

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Outlook & Valuation

Macro economic conditions will continue to be a concern for TCS as majority of the revenue is generated from the US and Europe. However they are less depended on the US and Europe for revenue as compared to their peers. Strong volume growth and management commentary indicating continued confidence in offshore IT service demand in an uncertain economic environment strengthens our confidence in this stock. Good double digit growth in service verticals like BFSI, Retail & Distribution, etc. as well as expansion in emerging markets could improve bottom-line margins going forward. At CMP INR 1120, the stock is trading at 21.3x its FY12 earnings estimate. We recommend HOLD rating on this stock and maintain our price target of INR 1200, implying an upside of 7.1% from current levels.

Consolidated Financials
(INR in mn)

Particulars Net Revenue Operating Exp. EBITDA EBITDA Margin Depreciation EBIT EBIT (%) Interest Other Income Tax Provision Tax Rate (%) PAT Extraordinary Items Minority Interest Reported PAT PAT Margin Diluted EPS (INR)

Q2 FY12 116,334.9 82,493.8 33,841.1 29.1% 2,317.7 31,523.4 27.1% 96.4 1,226.9 9,377.3 28.7% 23,276.60 0.0 (266.6) 23,010.0 19.8% 12.46

Q2 FY11 92,860.0 65,100.0 27,760.0 29.9% 1,730.0 26,030.0 28.0% 150.0 710.0 4,600.0 17.3% 21,990.00 0.0 (300.0) 21,690.0 23.4% 10.86

Y-o-Y 25% 27% 22% -81 bps 34% 21% -93 bps -36% 73% 104% 1142 bps 6% N.A -11% 6% -358 bps 15%

Q1 FY12 107,970.0 77,640.0 30,330.0 28.1% 2,080.0 28,250.0 26.2% 50.0 2,940.0 6,730.0 21.6% 24,410.00 0.0 (260.0) 24,150.0 22.4% 12.16

Q-o-Q 8% 6% 12% 100 bps 11% 12% 93 bps 93% -58% 39% 711 bps -5% N.A 3% -5% -259 bps 2%

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Growth by Domain
Particulars IP Revenue BFSI Telecom Retail & Distribution Manufacturing Hi-Tech Life Sciences & Healthcare Travel & Hospitality Energy & Utilities Media & Entertainment Others Total 43.5 10.7 12.1 7.8 5.9 5.3 3.8 4.3 2.1 4.5 100.0 44.0 12.8 10.9 7.4 4.6 5.1 3.2 4.3 2.0 5.7 100.0 -50 bps -210 bps 120 bps 40 bps 130 bps 20 bps 60 bps 0 bps 10 bps -120 bps 43.3 11.7 11.6 7.6 5.8 5.2 3.7 3.8 2.2 5.1 100.0 20 bps -100 bps 50 bps 20 bps 10 bps 10 bps 10 bps 50 bps -10 bps -60 bps Q2 FY12 Q2 FY11 Y-o-Y Q1 FY12 Q-o-Q

Geographical Segment Revenue

Particulars (in %) Americas North America Latin America Europe UK Continental Europe India Asia Pacific MEA Total 53.4 3.0 15.5 10.1 8.3 7.5 2.2 100 53.7 3.9 15.3 9.1 9.9 6.2 1.9 100 -30 bps -90 bps 20 bps 100 bps -160 bps 130 bps 30 bps 52.9 3.1 15.3 9.9 9.3 7.3 2.2 100 50 bps -10 bps 20 bps 20 bps -100 bps 20 bps 0 bps Q2 FY12 Q2 FY11 Y-o-Y Q1 FY12 Q-o-Q

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in