Technology

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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