Tata Consultancy Services reports 24.4% EBITDA growth in 2016 and 2.2 pp EBITDA Margin growth from 26.1% to 28.2%

18-04-2016 • About Tata Consultancy Services ($TCS) • By InTwits

Tata Consultancy Services reported FY2016 financial results today. Here are the key drivers of the company's long term financial model:

Tata Consultancy Services is a fast growth stock: FY2016 revenue growth was 14.8%, 5 year revenue CAGR was 23.8% at FY2016 ROIC 44.4%
Tata Consultancy Services has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.4%. At the same time it's in pair with industry average of 3.4%
CAPEX is quite volatile: ₹39,891m in FY2016, ₹59,776m in FY2015, ₹94,236m in FY2014, ₹118,710m in FY2013, ₹125,119m in FY2012
The company has highly profitable business model: ROIC is 44.4%

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

Tata Consultancy Services's Revenue jumped on 14.8%. Revenue decline was accelerating on average at -4.6 pp per annum in FY2012-FY2016. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 2.2 pp from 26.1% to 28.2% in FY2016.

Gross Margin increased slightly on 1.5 pp from 42.4% to 43.9% in FY2016. SG&A as a % of Revenue decreased slightly on 0.89 pp from 18.3% to 17.4% in FY2016.

Net Income margin increased slightly on 1.5 pp from 20.8% to 22.3% in FY2016.

Investments (CAPEX, working capital and M&A)

The company's CAPEX/Revenue was 1.8% in FY2016. CAPEX/Revenue decreased on 2.4 pp from 4.2% in FY2013 to 1.8% in FY2016. For the last three years the average CAPEX/Revenue was 2.9%. CAPEX as a % of Revenue stuck to a declining trend at -0.57 pp per annum in FY2012-FY2016.

Return on investment

The company operates at high and attractive ROIC (44.4%) and ROE (37.1%). ROIC increased on 3.8 pp from 40.5% to 44.4% in FY2016. ROE increased on 2.2 pp from 34.8% to 37.1% in FY2016.

Leverage (Debt)

Company's Net Debt / EBITDA is -0.2x and Debt / EBITDA is 0.0x. Debt dropped on 31.6% while cash dropped on 65.2%.

Tata Consultancy Services has no short term refinancing risk: cash is higher than short term debt (3,911.3%).

Financial and operational results

Tata Consultancy Services ($TCS) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	488,938	629,895	818,094	946,484	1,086,462	14.8%
Gross Profit			387,449	401,492	477,465	18.9%
SG&A			149,369	173,527	189,565	9.2%
EBITDA	144,353	180,399	251,322	246,664	306,780	24.4%
Net Income	104,135	139,173	191,168	196,484	242,149	23.2%
Balance Sheet
Cash	57,666	67,353	144,907	182,451	63,481	-65.2%
Short Term Debt	112	1,013	1,696	2,434	1,623	-33.3%
Long Term Debt	1,154	1,310	1,273	1,143	825	-27.8%
Cash flow
Capex	20,071	26,378	30,746	28,862	19,869	-31.2%
Ratios
Revenue growth	31.0%	28.8%	29.9%	15.7%	14.8%
EBITDA growth	29.1%	25.0%	39.3%	-1.9%	24.4%

Gross Margin			47.4%	42.4%	43.9%	1.5%
EBITDA Margin	29.5%	28.6%	30.7%	26.1%	28.2%	2.2%
SG&A, % of revenue			18.3%	18.3%	17.4%	-0.9%
Net Income Margin	21.3%	22.1%	23.4%	20.8%	22.3%	1.5%
CAPEX, % of revenue	4.1%	4.2%	3.8%	3.0%	1.8%	-1.2%

ROIC	48.6%	48.4%	50.2%	40.5%	44.4%	3.8%
ROE	38.6%	40.9%	40.7%	34.8%	37.1%	2.2%
Net Debt/EBITDA	-0.4x	-0.4x	-0.6x	-0.7x	-0.2x	0.5x

Peers in IT Consulting & Software

Below we provide Tata Consultancy Services benchmarking against other companies in IT Consulting & Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ramco Systems ($RAMCOSYS)	9.3%	7.3%	9.9%	37.0%	-
Cyient ($CYIENT)	30.7%	20.6%	17.8%	24.0%	-
Empower India ($EMPOWER)	-3.7%	-13.2%	-32.6%	23.9%	-
Hexaware Technologies ($HEXAWARE)	34.3%	17.3%	13.0%	21.0%	-
Tech Mahindra ($TECHM)	6.8%	25.2%	174.0%	20.1%	-
Median (22 companies)	19.7%	20.4%	13.5%	7.2%	17.1%
Tata Consultancy Services ($TCS)	-	28.8%	29.9%	15.7%	14.8%

Top companies by Gross margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Infosys ($INFY)	41.3%	98.1%	35.9%	38.3%	37.4%
Mindtree ($MINDTREE)	31.5%	36.2%	-	34.8%	32.4%
Wipro ($WIPRO)	29.2%	30.4%	32.0%	31.6%	-
Median (3 companies)	32.7%	36.2%	33.9%	34.8%	34.9%
Tata Consultancy Services ($TCS)	-	-	47.4%	42.4%	43.9%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Oracle Financial Services Software ($OFSS)	35.3%	35.2%	37.4%	39.7%	-
Infosys ($INFY)	31.6%	27.9%	26.3%	27.1%	27.1%
Wipro ($WIPRO)	19.1%	20.9%	22.4%	22.3%	-
Mindtree ($MINDTREE)	15.1%	19.8%	20.6%	20.3%	17.7%
Sqs India Bfsi ($SQSBFSI)	10.6%	18.8%	20.5%	19.4%	-
Median (25 companies)	15.1%	16.5%	18.3%	12.3%	10.6%
Tata Consultancy Services ($TCS)	29.5%	28.6%	30.7%	26.1%	28.2%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ramco Systems ($RAMCOSYS)	-	22.1%	15.3%	12.4%	-
Niit Technologies ($NIITTECH)	5.9%	4.6%	6.1%	7.9%	-
Financial Technologies (India) ($FINANTECH)	8.9%	11.4%	-	6.5%	5.4%
Mindtree ($MINDTREE)	2.5%	4.5%	5.0%	5.6%	3.4%
Tech Mahindra ($TECHM)	5.4%	2.6%	5.0%	5.0%	-
Median (20 companies)	3.7%	3.2%	2.6%	3.1%	4.4%
Tata Consultancy Services ($TCS)	4.1%	4.2%	3.8%	3.0%	1.8%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Hexaware Technologies ($HEXAWARE)	33.5%	39.2%	34.7%	35.7%	-
Mindtree ($MINDTREE)	24.9%	34.6%	36.2%	32.0%	28.9%
Sqs India Bfsi ($SQSBFSI)	12.1%	27.0%	29.4%	30.6%	-
Tech Mahindra ($TECHM)	15.4%	20.1%	43.0%	29.7%	-
Cmc ($CMC)	26.2%	33.2%	35.3%	26.0%	-
Median (30 companies)	19.1%	20.4%	22.9%	20.6%	25.3%
Tata Consultancy Services ($TCS)	48.6%	48.4%	50.2%	40.5%	44.4%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
3I Infotech ($3IINFOTECH)	8.5x	20.3x	27.7x	14.7x	-
Ramco Systems ($RAMCOSYS)	8.8x	-	27.6x	4.2x	-
Onward Technologies ($ONWARDTEC)	2.4x	2.2x	4.1x	1.9x	-
Kpit Technologies ($KPIT)	0.3x	0.5x	0.7x	0.4x	-
Mphasis ($MPHASIS)	-0.1x	0.2x	-	0.2x	-
Median (23 companies)	-0.0x	-0.2x	-0.2x	-0.2x	-0.2x
Tata Consultancy Services ($TCS)	-0.4x	-0.4x	-0.6x	-0.7x	-0.2x

Tata Consultancy Services stock price chart

Tata Consultancy Services financials

mln.	FY2010	FY2011	FY2012

Revenue	300,289	373,245	488,938
EBITDA	86,946	111,784	144,353
Net income	70,006	90,680	104,135
CAPEX	10,448	18,266	20,071
Debt	1,033	748.0	1,266
Cash	47,186	46,410	57,666

About Tata Consultancy Services

Tata Consultancy Services Limited provides information technology (IT) and IT-enabled services worldwide. The company offers assurance services, such as test consulting and advisory services, test services implementation, and managed services; business intelligence and performance management, including business intelligence, business process management, enterprise data management, and integration services; business process services; and cloud services. It also provides connected marketing solutions; consulting services comprising business change, and business and technology optimization; and eco-sustainability services. In addition, the company offers engineering and industrial services, including new product development, plant, product lifecycle management, geospatial technology, and computing-based engineering services; enterprise security and risk management services; enterprise solutions; iON, a cloud-based enterprise resource planning solution for small and medium businesses; and IT infrastructure services consisting of IT service desk, data center and application management, end user computing, converged network, managed security, enterprise system and IT service management, and transformation solutions. Further, it provides IT services comprising system integration, performance engineering, custom application development, application management, and application modernization; mobility products and services; and platform solutions. Additionally, the company offers software products, such as TCS BaNCS, TCS MasterCraft, and TCS technology products. It serves banking and financial services, energy, utilities, government, healthcare, high tech, insurance, life sciences, manufacturing, media and information services, resources, retail and consumer products, telecom, travel, transportation, and hospitality industries. The company was founded in 1968 and is based in Mumbai, India. Tata Consultancy Services Limited is a subsidiary of Tata Sons Limited.