Prabhudas Lilladher's research report on TCS
Tata Consultancy Services' (TCS') Q2FY17 revenues were 1.7% below expectations, while margins were in line with our expectations. Q2FY17 revenues were impacted by a) softness in BFS vertical, b) delay of ramp-ups in retail vertical and c) decline in India. Q2FY17 CC revenues are up only 7% YoY. USD revenues are up 5.2% YoY; however, ~100bps YoY EBIT margin drop resulted in just 1% EBIT growth. BFS growth was soft in the quarter and that could be a cause of concern. Overall, TCS had an unusually slow H1 led by cyclical challenges. Management expects H2FY17 to be better than historical trend. Management is also confident of return to higher growth once the cyclical challenges abate.
We have marginally tweaked our EPS estimates and retain our below consensus earnings estimates and "Accumulate" rating with a target price of Rs2,650 (earlier Rs 2,685) based on 18x Sep-18 EPS. Short-term challenges aside, we like TCS for its best-in-class execution, early investments in digital and leadership in most business segments. TCS remains well poised to grow at or above industry growth in the medium-to-long term.For all recommendations, click here
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