Moneycontrol
Last Updated : Jul 10, 2018 06:51 PM IST | Source: Moneycontrol.com

TCS starts FY19 on a strong note; stock likely to open higher on Wednesday

Operating margin for the quarter is 25 percent marginally lower than the 25.4 percent it posted in the previous quarter.

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Tata Consultancy Services (TCS) reported better than expected results for the quarter ended June on Tuesday where its net profit rose by 6 percent on a sequential basis and 23.5 percent on a year-on-year (YoY) basis to Rs 7,340 crore. This was higher than a CNBC-TV18 poll of Rs 6965 crore.

In the March quarter, TCS reported a net profit of Rs 6,904 crore, while revenue stood at Rs 32,075 crore.

Total revenues grew by 6.8 percent sequentially and 15.8 percent on a YoY basis to Rs 34,261 crore which was also higher than analyst estimates for the quarter ended June. Analysts’ polled by CNBC-TV18 were anticipating a figure of Rs33,997 crore.

The stock which has was hitting record highs in the run-up to the results for the quarter ended June has already rallied over 40 percent is all set to open higher and may even touch a fresh record high when trading resumes on Wednesday.

“TCS has a rich but deserving valuation. The stock is trading at 26.4 times of its trailing earnings & EV/Ebitda at 22.2x. We have a ‘hold’ rating on the stock and advise investors to add the stock on dips around Rs1750-1800,” Soumen Chatterjee, Director, Guiness Securities told Moneycontrol.

“Strong momentum was seen in BFSI segment and that is driving strong growth in North America business. The banking vertical recovered very nicely in Q1. The BFSI vertical growth accelerated, up 4.1 percent on a YoY basis and 3.7 percent QoQ. This should give a flip to the stock price in tomorrow's opening along with other IT stocks also,” he said.

The company also declared an interim dividend of Rs 4 per share. A rebound in its BFSI and retail verticals led to higher growth in its North America market, it said in a statement.

Growth in North America in the first quarter was 7 percent annually compared to a 4.9 percent growth in the previous quarter. North America revenue rose 3.7 percent sequentially.

Operating margin for the quarter is 25 percent marginally lower than the 25.4 percent it posted in the previous quarter.

Analysts had expected a margin decline due to the impact of wage hikes, increased visa costs and local investments in hiring local talent at the client side. The impact was expected to be partially offset by a weaker rupee.

Here’s how D-Street reacted post-TCS Q1 results in an interview with CNBC-TV18:

Apurva Prasad of HDFC Securities

“Looking at the results, it is a 1% beat on the revenues but there was no surprise on the margins front. The revenue growth of 4.1 percent in constant currency terms sequentially looks pretty strong especially the fact that BFSI is coming back and digital is growth at a fast pace which lead us to believe that there is upside risk to revenue estimates.

Karan Taurani of Dolat Capital

It has been a very strong quarter which was led broad-based growth across key verticals and all geographies. The retail and the BFSI verticals have bounced back. Overall, from the growth perspective, digital is the key. It is the third consecutive quarter where TCS is posting growth close to 35-40% in digital services.

Moshe Katri of Wedbush Securities

After a strong rally seen in TCS so far in 2018, we are looking at FY20 numbers for TCS. We are going to see continuous improvement in the top line growth which will help the stock. Most of the critical verticals are doing better.

We have seen an uptick in large deal flows for most of the top players in the industry. It suggests that the budget for IT services for most companies is improving. In terms of margins, it would be a function of the wage hike, visa cost inflation etc.
First Published on Jul 10, 2018 06:51 pm
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