ICICI Direct recommended hold rating on Tata Consultancy Services with a target price of Rs 2400 in its research report dated April 19, 2017.
ICICI Direct's research report on Tata Consultancy Services
US$ revenues grew 1.5% QoQ to $4,452 million, better than expectations on the back of cross currency benefit (50 bps). BFSI (39.9% of revenue) declined 0.4% QoQ in CC terms due to large project completion in Q3 and was a one-off factor. Retail (12.9%) declined 3% QoQ in CC terms led by reduced spending by clients owing to structural issues in the sector and is expected to remain soft over coming quarters.
Currently, TCS is trading at attractive valuation of 15x FY19 EPS & offers FY19 FCF yield of 5%. Also, the company’s commentary on payout of 80% of FCF is a positive. However, growing protectionism among geographies and rupee appreciation may overweigh on margins. Consequently, we are lowering our multiple by a notch to value TCS at 16x FY19E EPS of Rs 149.9 to arrive at our revised target price of Rs 2,400.
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