Reliance Securities
TCS (Buy)
CMP: ₹1,841.95
Target: ₹2,190
Tata Consultancy Services (TCS) has reported a decent CC revenue growth of 1.8 per cent q-o-q in 3QFY19, while USD revenue came in softer-than-expected at $5,250 million (+0.7 per cent q-o-q, below our estimate by 0.8 per cent) owing to a higher-than-expected adverse cross-currency impact. Its TCV order bookings grew by a robust >20 per cent q-o-q to $5.9 billion (versus $4.9 billion in 2QFY19), with book-to-bill rising strongly to 1.12x (versus 0.94x in 2QFY19), which signals a strong traction in underlying business growth. On the flip side, its EBIT margin declined by 90 bps q-o-q to 25.6 per cent (missing our estimate by 73 bps) owing to higher wage cost and SG&A expenses. Net profit rose by 2.6 per cent q-o-q to cross ₹8,100 crore (1.5 per cent below our estimate) aided by substantially higher other income (+59.3 per cent q-o-q) on forex gains.
From a vertical perspective, Life Sciences & Healthcare (+2 per cent q-o-q), Energy & Utilities (+2.9 per cent) and Regional Markets & Others (+2.3 per cent) saw decent growth in dollar USD terms. However, BFSI (-0.6 per cent q-o-q in dollar USD terms) and Retail (+0.1 per cent q-o-q) performed below the company average.
High payouts to shareholders in the form of share buybacks along with good business visibility will ensure the stock to remain at elevated valuations. Trimming our EPS estimates marginally to factor in lower-than-estimated quarterly performance, we maintain our Buy recommendation on the stock with a revised Target Price of ₹2,190 (from ₹2,260 earlier).