Tata Consultancy Services Ltd (TCS), which is India's largest IT Services company, is rapidly approaching the Rs.1,00,000 crores in Annual Total Income mark. With T-T-M Total Income of about Rs.95,000 crores and Net Profit of Rs.21,500 crores, TCS amongst the largest companies in India in terms of Net Profit too. At the current share price of over Rs.2600/-, TCS is also the largest company in India in terms of Market Capitalisation of over Rs.5,00,000 crores. TCS's Market Cap has more than doubled in just the last 2 years, mainly on the back of strong growth numbers posted by the company in FY'2013 & FY'2014. TCS has posted a growth of 30% in it's Total Income in both FY'13 & FY'14, while the Net Profit grew by 34% & 38% in the 2 years respectively. Such strong growth in two consecutive years ensured that the stock got re-rated with it's P/E rating improving from less than 19 in December'2012 to over 25 in September'2014.
As we can see, on a T-T-M basis, TCS's Total Income has seen a pretty linear growth without any noticeable dip in the last many many quarters. But if we look at the EBITDA numbers, it is tending to plateau in the last 2-3 quarters. The EPS numbers have already plateaued at a level close to Rs.110/-. If we look at the Quarterly numbers, TCS has clearly grown at a slower pace in the last 2 quarters. TCS's Quarterly Total Income, which was growing at about 22 to 35% Y-o-Y upto June'14, has posted growth of just 17% & 14% in the last 2 quarters. The situation on the Net Profit front is even worse. For 9 quarters upto June'14, TCS's Net Profit had grown at an average rate of over 35% and it has sharply dropped to 13% and 0% in the last 2 quarters. This is quite a shocking collapse in growth of the company's Net Profit. The company's Net Profit margin too has dropped from level of 24.3% in June'14 quarter to 21.2% in December'14 quarter.
The following chart shows the Y-o-Y growth rates for TCS's Total Income & Net Profit (T-T-M numbers):
Look at the sharp rise & then the sharp fall in TCS's T-T-M Net Profit growth. This sharp fall is having me worried. The share price of TCS still continues to trade over Rs.2600/- levels, i.e. at a T-T-M P/E ratio of about 24. For a company to command that kind of valuation, it will have to post improved growth rates in the coming quarters. The company should see it's Total Income & Net Profit growth rates to improve to atleast about 18 to 20% levels, if not better. If it fails to achieve these numbers, we could see a drop in the P/E ratio that TCS's share price is currently commanding. The share price could remain in a range for a longer period or even correct to some extent. So, please keep an eye on the next result. Those already holding TCS shares may consider booking atleast partial profits at current levels.
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Trailing-Twelve-Month progress |
The following chart shows the Y-o-Y growth rates for TCS's Total Income & Net Profit (T-T-M numbers):
Look at the sharp rise & then the sharp fall in TCS's T-T-M Net Profit growth. This sharp fall is having me worried. The share price of TCS still continues to trade over Rs.2600/- levels, i.e. at a T-T-M P/E ratio of about 24. For a company to command that kind of valuation, it will have to post improved growth rates in the coming quarters. The company should see it's Total Income & Net Profit growth rates to improve to atleast about 18 to 20% levels, if not better. If it fails to achieve these numbers, we could see a drop in the P/E ratio that TCS's share price is currently commanding. The share price could remain in a range for a longer period or even correct to some extent. So, please keep an eye on the next result. Those already holding TCS shares may consider booking atleast partial profits at current levels.
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