Moneycontrol
Apr 19, 2017 10:53 AM IST | Source: Moneycontrol.com

TCS recovers as co sees less impact of H1-B issue in FY18; analysts mixed

The IT major, on Tuesday, reported 4.2 percent year-on-year (YoY) growth in the net profit to Rs 6,608 crore for the quarter ended March 31

 
 
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Shares of Tata Consultancy Services (TCS) trimmed its losses after falling over 2 percent intraday on Wednesday as investors reacted to the company's lower-than-expected results.

The IT major, on Tuesday, reported 4.2 percent year-on-year (YoY) growth in the net profit to Rs 6,608 crore for the quarter ended March 31, which slightly below the CNBC-TV18 estimate of Rs 6,638 crore. The net profit fell 2.5 percent on quarter-on-

quarter (QoQ) basis.

The rupee revenue grew 4.3 percent on a YoY basis to Rs 29,642 crore for the quarter ended March 31, but fell 0.3 percent sequentially. The dollar revenue for the quarter ended March 31 came at USD 4,452 million which was slightly below the CNBC-TV18's estimate of USD 4,479.5 million. The company’s board also recommended a final dividend of Rs 27.50.

CLSA has retained its conviction buy rating on the stock with a target of Rs 3,000. The research firm believes that while the company missed revenue marginally due to a drag in BFSI and retail, other verticals such as telecom, manufacturing and life sciences surprised positively. It sees growth accelerating from the first or the second quarter of this fiscal.

Analysts at the firm observed that the constant currency margin was intact due to ramp ups in Dilligenta projects and may aid margin in FY18. As such, it sees shaved margins by 60 basis points in FY18 but still expects expansion in FY18-19. It has cut earnings by 2 percent. Furthermore, the capital allocation policy announced by TCS lacks detail, it added.

Macquarie has maintained a neutral stance on the stock with a lower target of Rs 2,274. It has lowered FY18-19 estimated earnings per share by 3-5 percent. A pick up in US BFSI, large deal win are the key likely catalysts for the stock.

Deutsche Bank reiterated top buy status on the stock with a target at Rs 2,900. It expects the firm to deliver constant currency revenue guidance of 9.4 percent year on year in FY18. Furthermore, it has also cut earnings estimates by 4-5 percent given the margin miss in Q4. It expect the company to deliver EPS Of Rs 145.7 in FY18 & earnings CAGR of 12% in FY18-20

JPMorgan has a neutral call on the stock with a target of Rs 2,450. The research firm observed that FY17’s robustly free cash flow/PAT conversion ratio implies 75-80 percent PAT paid out as dividends.

Bank of America Merrill Lynch has retained an underperform rating on the stock with a target price of Rs 2,130. It believes that TCS’ Q4 revenue growth and EBIT margin were below consensus and expectations. It expects a decline in EBIT margin as rupee appreciation is also weighing on it.

Citi has a sell call on the stock with a target price of Rs 2,140 from Rs 2,195. The company’s Q4 results are largely in line with estimates and the margin band of 26-28 percent looks difficult considering FY17 miss. The lower than consensus expectation remains unchanged, it added. Furthermore, valuation at over 17 times FY18e is difficult to justify given the slowing growth.

IDFC securities has reiterated its neutral rating on the stock with a cut in target price to Rs 2,325. The soft performance in Q4 is largely on account of weaker BFSI and retail growth. It believes that the drag from larger vertical would restrict revenue growth to 6 percent. Appreciation in rupee and investment to mitigate visa risk will erode earnings further, it added.

The brokerage house was factoring in mid-single digit earnings CAGR over FY17-19

The management’s outlook for BFSI is stronger for FY18, but optimism is not translated in deal wins, it added. Furthermore, it is factoring in slight erosion in operating margin, but sees downside risk if the rupee held on to its level.

Jefferies has maintained its buy call on the stock with a reduced target to Rs 2,590. It projected dollar revenue growth of 8.7/10 percent in FY18/19 with margin below 26-28 percent range. A more constructive outlook for FY18 and robust execution are key positives.

ICICI Securities retained add call on the stock due to the management commentary on strong pipeline and deal momentum. The target price for the stock is at Rs 2,415. It expects growth at higher end of peer averages on an organic basis in FY18. But it also sees difficulty in sustaining margin in FY18 even at lower end of targeted range.

Goldman Sachs has maintained its neutral rating with a cut in target price to Rs 2,092. The earnings in Q4 were below expectations and BFSI growth remained elusive, the research firm observed. A pick up in BFSI and strong digital practice should lead to 8.3 percent CC growth in FY18.

The stock has witnessed slightly weak movements in the recent past, with the stock falling 7 percent in the past one month, while its three-day loss was seen at 1 percent. At 10:14 hrs the stock quoting at Rs 2,304.00, down Rs 4.65, or 0.20 percent on the BSE. It has touched an intraday high of Rs 2,348.45 and an intraday low of Rs 2,255.00.
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