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Last Updated : Jun 08, 2017 11:24 AM IST | Source: Moneycontrol.com

TCS falls 3% post rating downgrade by Nomura to ‘Reduce’

Brokerage cites expensive valuations, Tier-1 challenges, among others as reasons for weak outlook for the company.

Shares of Tata Consultancy Services (TCS) lost nearly 3 percent intraday on Thursday as investors turned cautious of the stock post a ratings downgrade.

Nomura downgraded the stock to a reduce rating, with an implied downside of 18 percent.

“We find the stock expensive at 20/19x FY18/19 EPS (30-40% above Infosys/HCL Technologies, despite similar or likely lower EPS growth). We see risks to consensus growth / margins and remain 6% below consensus on FY19F EPS,” the brokerage said in its report.

Nomura is also cautious on the stock as it believes that Tier-1 IT companies face challenges from

1. Larger exposure to slower growing legacy areas

2. Competition from MNCs with stronger front-end consulting & comparable downstream operations

3. New challengers (focused on Digital) and insourcing trends

4. External risks linked with immigration tightening, which are risks to growth / margins.

Furthermore, the company expects the company to show dollar revenue/EPS CAGRs of 7/3 percent over FY17-19, with near flattish EPS in FY18. While the management commentary was optimistic, it says, the numbers still not have come through. This lower growth, it says, is due to weak growth, steep CQGR requirements for matching FY17 growth and caution on retail, telecom and healthcare segments on weak client financials and slower deal transition.

At 11:19 hrs Tata Consultancy Services was quoting at Rs 2,547.75, down Rs 67.60, or 2.58 percent on the BSE. It touched an intraday high of Rs 2,610.00 and an intraday low of Rs 2,536.70.
First Published on Jun 8, 2017 09:07 am
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