Very rarely do quarterly results of companies get me excited. I consider them as mere milestones on a journey. Milestones to which undue importance need not be attached. Poor or great results over a quarter or two are not earth shattering news except for the pink papers and news channels. TCS results are one which made me sit up and take notice. Why?
Here is why? They added almost 20000 employees in 1 quarter. They had double digit growth in all Verticals. Their profit margins were almost 30 pc and gap between Infosys and TCS is just 2.2 pc in terms of EBITDA margins. They became the first Indian IT company to login a turnover of 2 billion dollars in a quarter. They added 19 new large clients in first half of the year as compared to Infosys 9 clients.
The elephant has woken and begun to run. Infosys earlier had a large premium in valuations compared to TCS no more now. The Market cap of TCS has already overtaken Infosys. In P/E terms also the gap is narrowing.
When we compare Infosys, TCS and Wipro, Wipro seems to have lost its way, Infosys the management seems to be in consolidation mode.
I happened to see the management of TCS on CNBC and their body language impressed me. They indicated they are willing to do whatever it takes to grow. A calm, composed, confident management team. The transition has been smooth from Ramadorai to the next generation.
TCS expected EPS is 45 bucks for FY11, at around 25 times P/E not exactly cheap.But this is now a SIP stock. Buy 5 shares every month say for next 5 years.
In the long run, only the big IT companies will survive, the smaller ones will get merged and eaten up by the larger ones.