ICICI Direct's research report on TCS
The unusual Q2FY17 at the topline level was impacted by expected softness in discretionary spending in BFSI, especially in the US. Besides this, retail vertical weakness and postponement of India revenue came in as a negative surprise. A gloomy macro environment, upcoming US presidential elections and Brexit event has resulted in a holding back in discretionary spending. The macro environment remains volatile especially in BFSI (40.4% of revenue) & retail and CPG (13.4% of revenue) leading to a change in our dollar revenues growth estimate. We now expect dollar revenue to grow 6.8% / 9.0% in FY17E/ F18E, respectively.
We cut our estimates by 2-4% in FY17E & FY18E factoring in uncertainty due to a volatile macro environment and currency volatility. Consequently, we estimate rupee revenue, PAT CAGR of 9.3%, 8.5% in FY16-18E (average 26.1% EBIT margins in FY16-18E), vs. 23.8%, 22.8% reported in FY11-16, respectively. We value TCS at 18x FY18E EPS of Rs 144.7 to arrive at our revised target price of Rs 2,600.For all recommendations, click here
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