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Looking for a profitable fast-growing stock? Look at Tata Consultancy Services

23-04-2014 • About Tata Consultancy Services ($TCS) • By InTwits

Tata Consultancy Services is a growth stock in IT Consulting & Software industry. It showed noticeble revenue performance in the last years among with attractive profitability and financial model.

Growth story


Tata Consultancy Services showed fast growth in the last financial year. The company's revenue surged on 29.9% in FY2014. The growth also happened in EBITDA of 39.3% for the same period.

If we look for the longer period the company showed fast revenue growth of 29.9% from FY2011 to FY2014 annually. EBITDA surged on 31.0% from FY2011 to FY2014 annually.

Tata Consultancy Services ($TCS) financials for the last 5 years

mln. INR FY2010 FY2011 FY2012 FY2013 FY2014
Revenue300,289373,245488,938629,895818,094
Revenue growth, %24.3%31.0%28.8%29.9%
Gross margin, %47.4%
SG&A, %18.3%
EBITDA86,946111,784144,353180,399251,322
EBITDA growth, %28.6%29.1%25.0%39.3%
EBITDA margin, %29.0%29.9%29.5%28.6%30.7%
Net Income70,00690,680104,135139,173191,168
Net Income margin, % 23.3%24.3%21.3%22.1%23.4%
 
CAPEX10,44818,26620,07126,37830,746
CAPEX/Revenue, %3.48%4.89%4.10%4.19%3.76%
Debt1,0337481,2662,3232,969
Cash47,18646,41057,66667,353144,907
Net Debt/EBITDA-0.5x-0.4x-0.4x-0.4x-0.6x
 
ROIC, %44.7%47.1%48.6%48.4%50.2%
ROE, %41.1%42.3%38.6%40.9%40.7%

Profitability and return on investment


EBITDA growth was partly attributed to margin expansion. The company's EBITDA margin increased on 2.10 pp from 28.6% to 30.7% in FY2014. In the last 3 years Tata Consultancy Services showed small growth in EBITDA margin of 0.800 pp from 29.9% in FY2011 to 30.7% in FY2014.

Tata Consultancy Services shows attractive ROIC at 50.2% for the last 12 months which assumes stable development model. During the last three years it increased - it was 47.1% in FY2011. It's average ROIC for the last three years was 49.1%.

The company showed Net Income margin growth of 1.30 pp from 22.1% to 23.4% in FY2014. If we look for the longer period the company showed small Net Income margin decline of 0.900 pp from 24.3% in FY2011 to 23.4% in FY2014.

Tata Consultancy Services operates at ROE of 40.7%. For the last three years the average ROE was 40.0%.

Capital expenditures (CAPEX)


In FY2014 Tata Consultancy Services had CAPEX/Revenue of 3.76%. Tata Consultancy Services showed big decline in CAPEX/Revenue of 1.14 pp from 4.89% in FY2011 to 3.76% in FY2014. Average CAPEX/Revenue for the last three years was 4.02%.

Leverage (Debt)


Having such a fast growth profile Tata Consultancy Services keeps negative net debt at -0.6x Net Debt/EBITDA. In the longer period leverage surged on 0.16x from -0.41x in FY2011 to -0.56x in FY2014.

Peers in IT Consulting & Software


Below you can find Tata Consultancy Services benchmarking vs. other companies in IT Consulting & Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top
Mindtree ($MINDTREE)-65.0%26.6%23.2%28.8%
Infosys ($INFY)20.9%22.7%19.6%24.2%
Cmc ($CMC)-65.2%35.5%31.1%15.8%
 
Median (3 companies)-65.0%26.6%23.2%24.2%
Tata Consultancy Services ($TCS)24.3%31.0%28.8%29.9%


Top companies by Gross margin, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top
Infosys ($INFY)42.7%45.3%41.3%98.1%35.9%
 
Median (1 company)42.7%39.0%36.4%67.1%35.9%
Tata Consultancy Services ($TCS)47.4%


Top companies by EBITDA margin, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top
Infosys ($INFY)34.4%32.5%31.6%27.9%26.3%
Mindtree ($MINDTREE)5.8%11.8%15.1%19.8%20.6%
Cmc ($CMC)5.6%19.4%15.3%16.5%18.0%
 
Median (3 companies)5.8%19.4%15.3%19.8%20.6%
Tata Consultancy Services ($TCS)29.0%29.9%29.5%28.6%30.7%


Top companies by CAPEX/Revenue, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top
Infosys ($INFY)3.7%4.7%4.9%5.2%5.5%
Mindtree ($MINDTREE)1.1%5.6%2.5%4.5%5.0%
Cmc ($CMC)0.9%9.2%8.1%4.4%4.0%
 
Median (3 companies)1.1%5.6%4.9%4.5%5.0%
Tata Consultancy Services ($TCS)3.5%4.9%4.1%4.2%3.8%


Top companies by ROIC, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top
Mindtree ($MINDTREE)26.4%14.9%24.9%34.6%36.2%
Cmc ($CMC)32.0%31.5%26.2%33.2%35.3%
Infosys ($INFY)32.2%32.1%32.4%28.3%27.2%
 
Median (3 companies)32.0%31.5%26.2%33.2%35.3%
Tata Consultancy Services ($TCS)44.7%47.1%48.6%48.4%50.2%


Top companies by Net Debt / EBITDA

 FY2010 FY2011 FY2012 FY2013 FY2014
Top
Mindtree ($MINDTREE)-0.1x-0.1x-0.0x-0.2x-0.2x
Cmc ($CMC)-0.1x-0.2x-0.2x-0.4x-0.3x
Infosys ($INFY)-1.5x-1.9x-1.9x-1.9x-2.0x
 
Median (3 companies)-0.1x-0.2x-0.2x-0.4x-0.3x
Tata Consultancy Services ($TCS)-0.5x-0.4x-0.4x-0.4x-0.6x