ICICI Direct recommended hold rating on Tata Consultancy Services with a target price of Rs 1750 in its research report dated January 11, 2019.
ICICI Direct's research report on Tata Consultancy Services
TCS reported a weak Q3FY19 with a margin decline of 90 bps QoQ and constant currency (CC) revenue growth of 1.8% QoQ (vs. our estimate of 2.7% QoQ) In US$ terms, revenues grew 0.7% QoQ to $5,250 million mainly led by energy & utilities partly offset by a muted performance in BFSI and retail & CPG vertical There was disappointment at the margin level as EBIT margins declined 90 bps QoQ to 25.6% (vs. our 27% estimate). The margin decline was mainly on account of net cross currency headwind and increase in employee and sub-contractor cost (negative 60 bps).
TCS reported a weak quarter, especially on the margin front and the management commentary indicates pressure will remain, going ahead. Further, the absence of rupee benefit, caution in Europe and the UK from BFS vertical coupled with global macro uncertainty prompts us to cut our EPS estimates by ~3-7% for FY19E, FY20E. We roll over our valuation to FY21E and value the stock at ~18x FY21E EPS. We maintain our HOLD rating on the stock with a revised target price of Rs 1750.
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