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Indian IT’s new Poster Boy!

Tata Consultancy Services has become India’s largest IT company & is showing no signs of fatigue…

Tata Consultancy Services (TCS) is now the Infosys of the Indian IT sector. Everything that was once admired about Infosys has now been taken over by TCS. Today, as Infosys stares at slowdown across key verticals, TCS is on a rampage. What slowdown, it could ask, with its trailblazing results. India’s largest IT company is not showing any signs of fatigue either. In the last one year, TCS’ revenues are up by a third and earnings by 18 per cent. And the company earns returns of 50 per cent on its capital – without any debt!

On a trailblaze: TCS’ results have belied what other IT majors have been crying themselves hoarse about – that there is no slowdown for aggressive companies. In the same verticals that its peers are stumbling, TCS has been reporting healthy growth. Infact, TCS’ results have shown good growth across verticals and geographies. The globally troubled BFSI segment registered a growth of 5.6 per cent (q-o-q).

On a strong footing: TCS’ results have been one of the best in the industry. Revenue saw growth of 3 per cent (q-o-q) in dollar terms and 4 per cent in constant currency. Volume growth came in at a robust 5.3 per cent (q-o-q) while international volume growth came in higher at 5.9 per cent.

Straddling strategy gets more business: TCS has set itself apart from its peers. Unlike Infosys, TCS has straddled the entire spectrum with different services and offerings for different clients. Today the company is able to provide full services in both top-end and low-end and growth led and ADM services.
Similarly, the company’s early investments into newer geographies and platforms has started paying off. Platforms are now estimated to bring in $500 million in revenues this financial. Investments in Latin American countries too has started showing results.

Strong cash flows: TCS has been able to exhibit robust cash flow growth inspite of financially difficult times like these. The most recent quarter (Q1FY13) saw its operating cash flows increase 35 per cent (y-o-y) in USD terms and 63 per cent in rupee value.

Relatively lower attrition: TCS’ quarterly annualised attrition rates came to 14.9 per cent. Though this quarter generally has high attrition as a group of employees move out for higher education, TCS’ attrition levels are a full 7 percentage points lower than those of arch-rival Infosys, exhibiting better employee management techniques on the tech major’s arsenal.

Outlook and valuations: TCS’ run has been going good for some quarters now. As such, the market has already re-rated the stock. At the CMP, the stock quotes at 21 times its TTM earnings while Infosys trades at 16 times. The market is bullish on its good run continuing. However, wait for a correction in valuations.