Buy TCS; target of Rs 2750: Sharekhan

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Sharekhan's research report on TCSGiven the backdrop of weak seasonality coupled with Chennai flood, Tata Consultancy Services (TCS) has reported a muted revenue growth of 0.5% QoQ on a constant-currency (CC) basis (0.4% volume growth). On a reported basis, revenues were down by 0.3% QoQ to $4,145 million, owing to 80BPS of negative effect from cross-currency headwinds. In terms of CC, revenues from international business were up by 1.1% QoQ, while revenues from India were down by 0.6% QoQ. The EBIT margin for the quarter was down by 50BPS QoQ to 26.6%, on account of higher SG&A spend and lower utilisation, though still better than expectations. The net income for the quarter was up by 0.9% QoQ, led by higher other income (up 3.6% QoQ) and lower tax provision. During the quarter, the company has announced nine key wins across the verticals and geographies. It added one new client in the $100-million revenue bucket and made a gross addition of 22,118 headcounts (net addition of 9,071) and annualised quarterly attrition stood at 15.1% against 17.3% in Q2FY2016. We continue to remain positive on TCS, given its strong positioning, scale advantage and headstart in the digital technology space (highest among the top Indian IT companies. However, revenue growth deacceleration has affected premium valuation of TCS (already seeing de-rating; trades at 17x and 15x based on its FY2017E and FY2018E earnings respectively), which we believe is attractive for an investment horizon of 12 months. We have tweaked our earnings estimates attributed to revenue miss. We also have maintained our Buy rating on the stock with a revised price target of Rs 2,750.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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