Result Flash on TCS for 4QFY2011.

TCS reported decent set of 4QFY2011 numbers today. The company reported revenues of US $2,244 mn (v/s our expectation of US $2,252mn) with 4.7% qoq growth on the back of modest volume growth of 2.9% qoq led by growth in mature markets, 70bp positive impact due to pricing uptick and cross currency benefit. In rupee terms, the revenues came in at `10,158cr (v/s our expectation of `10,211cr), up 4.7% qoq. EBIT margin declined only by 6bp qoq to 28.0% despite of strong gross addition of 19,324 employees which lead to 200bp drop in utilisations. PAT came in at `2,402cr with 3.1% qoq growth due to maintained profitability and aided by higher other income of `226cr as against `181.7cr in 3QFY2011.

4QFY2011: Result highlights

(Rs cr)	4QFY11	4QFY11E	% Var	3QFY11	% chg (qoq)	4QFY10	% chg (yoy)
Net revenue	10,158	10,211	(0.5)	9,663	5.1	7,737	31.3
EBIT	2,846	2,900	(1.9)	2,713	4.9	2,127	33.8
EBIT margin (%)	28.0	28.4	(39)bp	28.1	(6)bp	27.5	52bp
PAT	2,402	2,448	(1.9)	2,330	3.1	1,931	24.4

Key highlights:

·         The growth was broad based, almost across all industries as well as geographies with industries like Hi-tech and transportation growing in double digits. Also, robust traction is seen in manufacturing, energy and utilities and retail and distribution.

·         Hiring remained strong with gross addition and net addition of 19,324 gross employees and 11,700 net employees. The company has already given offers to 37,000 people and expecting to have a joining ratio of around 70%.

·         Utilisation level-including and excluding trainees- declined this quarter to 75.1% and 82.4% from 77.1% and 83.8%.

·         Attrition rates remained constant at 14.4% on LTM basis.

·         Client addition remained strong with addition of 39 clients this quarter. Active client base of the company increased to 969 from 959 in 3QFY2011

The company managed to have almost stable margins in this quarter despite utilisation coming down on the back of robust hiring done, which is a commendable task. The management indicated that the qualified deal pipeline is very promising vis-à-vis same time last year. It is also witnessing pricing upticks from various contracts coming in and has shown an improvement over the last two quarters. The company plans to give a strong 12-14% wage hike to offshore employees and 2-4% to onsite employees, effective 1 April, 2011. The company remains as our top pick amongst the tier-I IT companies because of its diversified portfolio on all fronts service wise, industry exposure wise as well as geography wise. Since the results very much in line with expectation we maintain our target of `1274 and will be releasing a detailed update shortly post the concall.