Technology

TCS posted a lower than expected top-line for 3QFY2016, while the EBDITA and
net profit were in line and higher than expected, respectively. The company
posted a 0.3% sequential de-growth in USD revenues to US$4,145mn (V/s our
expectation of US$4,177mn). In constant currency terms (CC), the company
posted a qoq revenue growth of 0.5%, mainly impacted by the Indian business.
The international business posted a 1.1% qoq growth during the quarter. On the
operating front, the EBIT margin came in at 26.6% (V/s 26.4% expected) a
downtick of 47bp qoq. Consequently, the PAT came in at Rs6,110cr (V/s Rs5,999cr
expected), a growth of 0.9% qoq. While we have downgraded the numbers, we
maintain our Buy on the stock with a target price of Rs2,854.
Quarterly highlights: TCS posted a 0.3% sequential de-growth in USD revenues
to US$4,145mn (V/s an expectation of US$4,177mn). In CC terms, the company
posted a qoq growth of 0.5%, mainly impacted by the Indian business. The
volume growth during the quarter was of 0.4% qoq. On the operating front, the
EBIT margin came in at 26.6% (V/s 26.4% expected) a downtick of 47bp qoq.
Consequently, the PAT came in at Rs6,110cr (V/s Rs5,999cr expected), a growth of
0.9% qoq. The employee utilization was 84.9% excluding trainees and 80.9%
including trainees, while attrition was 15.3% in IT services and 15.9% including
the BPS. Overall attrition was down 30bp qoq.
Outlook and valuation: TCS’ commentary remained largely unchanged with the
Management highlighting that it had not received any ‘negative’ indications on IT
budgets/ spending trends. Over FY2015-17E, we expect TCS’ revenue to post a
CAGR of 10.5% in USD terms and of 13.8% in INR terms.

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