If you are a TCS shareholder than think about it this way, you all had so far invested Rs 50,635 crore and last year your business made a net profits of Rs 20,060. This translates a return of 40% on the equity.

Last year they paid out Rs 18,200 crore as dividends inclusive taxes i.e. 90% of profits were given back to shareholders and 10% was reinvested in the business. They normally redistribute their profits as dividends in range of 40% – 50% and reinvest rest of the money back into the business.

The quarter one of 2016 is out and in brief if we talk about it than the management and media are talking about growth in revenues of 15% year to year and 6% quarter to quarter, operating margins at 26% and so on.

Nobody is talking about how marginal Net Profits have grown, just by 2% on year on year basis for this quarter.

To maintain its return on equity by 40% for the next year they will have to just grow their net profits by Rs 800 crore. If we look at the consensus estimates for the 2016 they are expecting its earnings to Rs 121 and for 2017 Rs 139 a growth of around 15% – 20% in its earnings.

Looking at those figures I think that the analysts are very optimistic about its earnings growth. If we take those earnings number in our calculations then for the year 2016 we expect its intrinsic value around Rs 1900 and for 2017 around Rs 2400.

Don’t forget the concept of margin of safety here. If we were to invest in this business we look for at least 20% of margin of safety to its intrinsic values.

From the last five quarters the profits or bottom line have not gone anywhere and they are struggling to grow. We think that in the future the board will increase its dividends as they do not see any growth for the short term. We think market will re-evaluate this business as yield stock rather than a growth stock.

We do not own this business in our portfolio and Aziz Dodhiya is the chief investment officer and co-founder of Valueoperations funds in Australia and if you want to contact him please email him on aziz@valueoperations.com.