Neutral TCS; target of Rs 2339: Arihant Capital

Arihant Capital 's research report on TCS

TCS Q1FY21 earnings were below our estimates on all fronts as Covid-19 pandemic disrupted the business performance of the company. Consolidated revenue stood at Rs 3,83,220 mn, below our estimate of Rs 3,95,458 mn, registering +0.4% YoY/-4.1% QoQ. Consolidated EBIT stood at Rs 90,480 mn, down by -1.9% YoY/-9.7% QoQ. On the margins front, EBIT margin contracted by 54bps YoY to 23.6% due to higher employee costs and depreciation expenses. Consolidated PAT saw a decline of 13.8% YoY to Rs 70,090 mn, vs 81,270 mn in Q1FY20 due to lower other income. The board recommended an interim dividend of Rs 5 per equity share of Rs 1 each of the company.

Outlook

TCS also expects Q3FY21 INR revenue to be equal to Q3FY20. At CMP of Rs 2204, TCS currently trades at FY20 P/E of 25.5x Factoring in weak Q1FY21 results, we slightly lowered our FY21/FY22 estimates. We value TCS at PE of 25x to its FY22E EPS of Rs 94, which yields a target price of Rs 2339 per share. We upgrade our rating to Hold from Neutral earlier.

TCS 18072020-ahri

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