Hold Tata Consultancy Services; target of Rs 2080: ICICI Direct

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ICICI Direct's research report on Tata Consultancy Services

TCS reported a weaker-than-expected performance this quarter in terms of revenue growth. The lower-than-expected dollar revenue was due to weakness in the European banking & retail segment. The key driver of revenues in the quarter was digital revenues, which increased 40% YoY and 5.6% sequentially in dollar terms. In terms of EBIT margins, the company reported a decline of 93 bps QoQ mainly due to wage hikes and higher subcontracting cost. After adjusting for gains due to new lease accounting and one off in previous quarter the dip in EBIT margin was 150 bps.

Outlook

Weaker than expected Q1FY20E, weakness in BFSI and fully priced valuations prompt us to main our HOLD recommendation on the stock. We value the stock at ~21x FY21E EPS with a revised target price of Rs 2080.

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