Edelweiss' is bullish on Tata Consultancy Services has recommended hold rating on the stock with a target price of Rs 2315 in its research report dated July 13, 2017.
Edelweiss' research report on Tata Consultancy Services
Tata Consultancy Services’ (TCS) Q1FY18 revenue, at USD4,591mn, moved up 3.1% QoQ and was bang in line with Street estimate. However, EBIT margin at 23.4% (down 240bps QoQ) came below Street’s 24.2% estimate. Margin miss was on account of currency volatility and wage hike. Key highlights: 1) BFSI and retail deal pipeline is improving, but not enough to call out a turnaround; 2) strong 7.6% QoQ growth in digital (contributes 18.9% of revenues); and 3) although retail grew 2.0% QoQ riding its digital prowess, underlying weakness in large customers persists. We maintain that limited margin levers and weak revenue growth will impinge on TCS’s earnings growth. Maintain ‘HOLD’ with a revised TP of INR2,315 (INR2,395 earlier).
We believe TCS is a dividend/buyback play till margins stabilise and negative impact of volatile business/geographies gets assimilated. We maintain ‘HOLD/SP’ with revised TP of INR2,315 (16x FY19E EPS). The stock is currently trading at 16.9x FY19E EPS.
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