Prabhudas Lilladher is bullish on TCS has recommended accumulate rating on the stock with a target price of Rs 2600 in its research report dated October 12, 2017.
Prabhudas Lilladher's research report on TCS
TCS 2QFY18 results were marginally below our estimates on USD revenues but beat our estimates on EBIDTA margin and PAT. PAT was 2% above our estimate led by margin beat. Constant currency revenue growth for 2QFY18 came at 1.7% QoQ (vs. our estimate of 2.3%). Tepid cc revenue growth in a seasonally strong quarter is a concern. We note select large segments appear to be showing signs of softness. Revenues from North America (~52% of total revenues) for 2QFY18 were up 1.4% QoQ and a modest 3.6% YoY in constant currency. Softer traction in the core geographies is a concern. Lack of acceleration in BFSI (33% of total revenues) is another turnoff. BFSI vertical revenues grew by 1.9% QoQ and 4.7% YoY in constant currency. Retail vertical (~12% of total revenues) remains a pain point down 0.9% QoQ and 1.4% YoY. While TCS sounded confident of recovery in demand from Retail vertical from 3Q onwards, it remained cautious on BFSI vertical demand outlook.
Aided by cross currency tailwinds, we model TCS USD revenue growth at 8.4/9.3% for FY18E/FY19E (vs. 8.1/8.5% modelled earlier). However, TCS constant currency growth would be only 6.3% for FY18 which is lower than FY17 (8.3% cc revenue growth delivered in FY17). 2Q margin beat is negated by currency reset (USD vs INR) to lower levels which leads us to retain our EBIT margin assumption are retained at 24.9/24.5% for FY18/FY19E. Our EPS estimates are retained at FY18/FY19E to Rs136/148/sh. Raise TP by 2% to Rs 2600/sh (17x Sep 19E EPS vs 17x June19E EPS earlier). Maintain Accumulate.
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