TCS posted a 3.7% sequential growth in USD revenues to US$4,362mn for
1QFY2017 (V/s US$4,375mn expected), which was mostly volume led (3.4%
qoq growth). On constant currency (CC) basis, the revenue growth is of 3.1%
qoq. On the operating front, the EBITDA and EBIT margins came in at 26.7%
and 25.1%, a dip of ~97bp and ~98bp qoq respectively, which is mostly in line
with our expectations. Consequently, the PAT came in at Rs6,317cr (V/s Rs6,151cr
expected), a de-growth of 0.4% qoq. We maintain our Buy on the stock.
Quarterly highlights: The company posted a 3.7% sequential growth in USD
revenues to US$4,362mn for 1QFY2017 (V/s US$4,375mn expected), which
was mostly volume led (3.4% qoq growth). On constant currency (CC) basis, the
revenue growth is of 3.1% qoq. In terms of geography, USA posted a CC qoq
growth of 2.5%, while Latin America posted CC qoq growth of 0.3%. In terms of
verticals, its key industries BFSI, Retail & CPG, and Manufacturing posted a CC
qoq growth of 1.7%, 2.7%, and 3.1%, respectively. On the operating front, the
EBITDA and EBIT margins came in at 26.7% and 25.1%, a dip of ~97bp and
~98bp qoq respectively, which is mostly in line with our expectations.
Consequently, the PAT came in at Rs6,317cr (V/s Rs6,151cr expected), a degrowth
of 0.4% qoq.
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 a revenue CAGR of 12.0% in USD as well as
INR terms over FY2016-18E. The stock trades at 16.6x its FY2018E EPS, which is
attractive.
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