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Eye on Tata Consultancy Services as a growth stock

23-04-2015 • About Tata Consultancy Services ($TCS) • By InTwits

Pay attention to Tata Consultancy Services as a growth stock. Its revenue performance, profitability and healthy financial model stands it out vs. other public companies on the market.

Growth story


Tata Consultancy Services showed fast growth in the last financial year. The company's revenue surged on 15.7% in FY2015. At the same time the company well managed its profitability and also showed EBITDA growth of -1.85% for the same period.

In the last 3 years the company showed fast revenue growth of 24.6% from FY2012 to FY2015 annually. EBITDA surged on 19.6% from FY2012 to FY2015 annually.

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

mln. INR FY2011 FY2012 FY2013 FY2014 FY2015
Revenue373,245488,938629,895818,094946,484
Revenue growth, %31.0%28.8%29.9%15.7%
Gross margin, %47.4%42.4%
SG&A, %18.3%18.3%
EBITDA111,784144,353180,399251,322246,664
EBITDA growth, %29.1%25.0%39.3%-1.9%
EBITDA margin, %29.9%29.5%28.6%30.7%26.1%
Net Income90,680104,135139,173191,168196,484
Net Income margin, % 24.3%21.3%22.1%23.4%20.8%
 
CAPEX18,26620,07126,37830,74628,862
CAPEX/Revenue, %4.89%4.10%4.19%3.76%3.05%
Debt7481,2662,3232,9693,577
Cash46,41057,66667,353144,907182,451
Net Debt/EBITDA-0.4x-0.4x-0.4x-0.6x-0.7x
 
ROIC, %47.1%48.6%48.4%50.2%40.5%
ROE, %42.3%38.6%40.9%40.7%34.8%

Profitability and return on investment


Despite revenue growth EBITDA margin declined slightly from 30.7% in FY2014 to 26.1% in FY2015. In the last 3 years EBITDA margin dropped on 3.40 pp from 29.5% in FY2012 to 26.1% in FY2015.

Tata Consultancy Services shows attractive ROIC at 40.5% for the last 12 months which assumes stable development model. During the last three years it dropped - it was 48.6% in FY2012. For the last three years the average ROIC was 46.4%.

Tata Consultancy Services's Net Income margin dropped on 2.60 pp from 23.4% to 20.8% in FY2015. In the last 3 years the company's Net Income margin decreased slightly on 0.500 pp from 21.3% in FY2012 to 20.8% in FY2015.

Tata Consultancy Services operates at ROE of 34.8%. It's average level of ROE for the last three years was 38.8%.

Capital expenditures (CAPEX)


The company's CAPEX/Revenue was 3.05% in FY2015. The company's CAPEX/Revenue dropped on 1.06 pp from 4.10% in FY2012 to 3.05% in FY2015. For the last three years the average CAPEX/Revenue was 3.67%.

Leverage (Debt)


The company has negative net debt at -0.7x Net Debt/EBITDA - at the same time with high growth. In the longer period Tata Consultancy Services showed fast leverage growth of 0.33x from -0.39x in FY2012 to -0.73x in FY2015.

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, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
Tech Mahindra ($TECHM)-85.8%6.8%25.2%174.0%
Mindtree ($MINDTREE)26.6%23.2%28.8%17.0%
Infinite Computer Solutions (India) ($INFINITE)-57.9%19.5%31.7%24.6%
Infosys ($INFY)20.9%22.7%19.6%24.2%
Sqs India Bfsi ($SQSBFSI)-66.5%46.4%32.9%20.4%
 
Median (21 companies)-44.3%22.7%20.4%14.0%14.8%
Tata Consultancy Services ($TCS)31.0%28.8%29.9%15.7%


Top companies by Gross margin, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top
Infosys ($INFY)45.3%41.3%98.1%35.9%
Wipro ($WIPRO)31.5%29.2%30.4%32.0%
 
Median (2 companies)34.7%32.7%36.2%33.9%34.8%
Tata Consultancy Services ($TCS)47.4%42.4%


Top companies by EBITDA margin, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
Oracle Financial Services Software ($OFSS)37.4%35.3%35.2%37.4%
Infosys ($INFY)32.5%31.6%27.9%26.3%
Wipro ($WIPRO)21.1%19.1%20.9%22.4%
Tech Mahindra ($TECHM)19.5%16.7%20.7%22.2%
Mindtree ($MINDTREE)11.8%15.1%19.8%20.6%20.3%
 
Median (18 companies)18.0%15.1%16.5%18.3%18.1%
Tata Consultancy Services ($TCS)29.9%29.5%28.6%30.7%26.1%


Top companies by CAPEX/Revenue, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
Ramco Systems ($RAMCOSYS)16.4%22.1%15.3%
Niit Technologies ($NIITTECH)4.1%5.9%4.6%6.1%
Infosys ($INFY)4.7%4.9%5.2%5.5%
Mindtree ($MINDTREE)5.6%2.5%4.5%5.0%5.6%
Tech Mahindra ($TECHM)3.0%5.4%2.6%5.0%
 
Median (17 companies)4.0%3.7%3.2%2.6%4.4%
Tata Consultancy Services ($TCS)4.9%4.1%4.2%3.8%3.0%


Top companies by ROIC, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
Tech Mahindra ($TECHM)19.2%15.4%20.1%43.0%
Geometric ($GEOMETRIC)19.6%29.9%46.4%41.1%
Mindtree ($MINDTREE)14.9%24.9%34.6%36.2%32.0%
Cmc ($CMC)31.5%26.2%33.2%35.3%26.0%
Hexaware Technologies ($HEXAWARE)23.8%33.5%39.2%34.7%
 
Median (30 companies)16.0%19.1%20.4%22.9%29.0%
Tata Consultancy Services ($TCS)47.1%48.6%48.4%50.2%40.5%


Top companies by Net Debt / EBITDA

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
3I Infotech ($3IINFOTECH)3.5x8.5x20.3x27.7x
Ramco Systems ($RAMCOSYS)4.0x8.8x27.6x
Starcom Information Technology ($STARCOM)17.4x
Onward Technologies ($ONWARDTEC)2.7x2.4x2.2x4.1x
Kpit Technologies ($KPIT)-0.7x0.3x0.5x0.7x
 
Median (23 companies)-0.1x-0.0x-0.2x-0.2x-0.4x
Tata Consultancy Services ($TCS)-0.4x-0.4x-0.4x-0.6x-0.7x