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Tata Consultancy Services Ltd Research Report - 21st Oct 2016

IT | Published on Oct 21st 2016

IT

TCS has announced its 2QFY2017 results and has posted a 0.3% sequential growth in USD revenues to US$4,374mn (V/s US $4,441mn expected). Though the results came in below expectations, the EBIT margins and net profit came in much higher than expected. The constant currency (CC) growth stands at 1.0% qoq, while the volume growth is at 1.3% qoq. On the operating front, the EBIT margins came in at 26.2% (V/s 25.2% expected), an expansion of 93bp. Consequently, the PAT came in at Rs6,586cr (V/s Rs6,377cr), a rise of 4.3% qoq. We recommend an accumulate stance on the stock. Quarterly highlights: The company posted a 0.3% sequential growth in USD revenues to US$4,374mn (V/s US $4,441mn expected). In INR terms, revenues dipped by 0.1% qoq to Rs29,284cr (V/s Rs29,707cr)by. The constant currency (CC) growth stands at 1.0% qoq, while the volume growth is at 1.3% qoq. On the operating front, the EBIT margins came in at 26.2% (V/s 25.2% expected), an expansion of 93bp. Consequently, the PAT came in at Rs6,586cr (V/s Rs6,377cr), a rise of 4.3% qoq. The clients in $50mn+ revenue band increased by 2, in $20mn+ revenue band by 5 and in $5mn+ revenue band by 13. The attrition rate was at 11.9% in the IT services. Outlook and valuation: With headwinds from Diligenta and Latin America behind, still an uncertain BFSI may mar the company’s growth (although the same is not currently being encountered). However, even on conservative estimates, we expect TCS to post revenue CAGR of 10.5% in USD as well as INR terms over FY2016-18E. The stock trades at 16.5x its FY2018E EPS, which is expected to be positive in the near term. Hence, we recommend an accumulate on the stock.

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Accumulate

CMP 2,398
Target Price 2,620
Investment Period12 Months

Stock Info

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Shareholding Pattern (%)

Promoter73.0
Foreign17.0
Institution5.0
Public & Others5.0
Corporate0.0
Grand Total100.0

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