Prabhudas Lilladher’s research report on Tata Consultancy Services
TCS delivered a strong set of perfomance for 4QFY18 with a beat on USD revenues and PAT. Revenues at USD4972mn were up 3.9% QoQ and 11.6% YoY and above our estimates (PLe: USD4921mn). Constant currency growth for the stood at 2% and above our ests (Ple: 1.5%). EBIT margin for the quarter came at 25.4% up 20 bps QoQ and below our estimates ( PLe: 25.7%). PAT for the quarter came at Rs69bn which is 1% above our estimates led by higher other income. Among verticals, BFSI/ Retail vertical revenues were up 0.4/0.8% QoQ in constant currency and continued to remain weak. Both these verticals together account to 45% of total revenues. Management guided that Retail vertical could bounce back in FY19E aided by improved deal wins. Management also remained cautiously optimistic on BFSI vertical and cited that it would wait for 1QFY19 traction to assess the recovery in this vertical. Revenues from North America region were up a 0.2% QoQ and remained tepid. Traction in Europe drove most of the growth for the quarter (led by ramp up of recent large deal wins from the region). Overall, TCS cited that steady 4QFY18 exit revenue runrate would place the company in a strong footing for FY19E.
We value TCS at 21x FY20E EPS (vs 17.5x FY20E earlier) which yields a TP of Rs3380/sh. This represents a 20% upgrade in our target price. Retain Accumulate.
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