Emkay Global Financial is bearish on Tata Consultancy Services has recommended sell rating on the stock with a target price of Rs 1750 in its research report dated July 14, 2020.
Emkay Global Financial's report on Tata Consultancy Services
TCS reported a weak quarter, missing estimates. Revenue in cc terms fell 6.9% QoQ/6.3% YoY, leading to a 150 bps QoQ drop in EBIT margins despite benefits from INR depreciation, lower SG&A and travel expenses and other cost rationalization measures. Revenue decline was contained in Financial Services (-2.2% QoQ cc, along expected lines) and Hi-Tech (-3.4% QoQ cc), although performance was weak in Manufacturing, Telecom and Retail. Among regions, UK and India were the most impacted. The order book at US$6.9bn (vs. US$8.9bn QoQ/US$5.7bn YoY) appeared resilient, given the macro. Management highlighted that it benefitted from the closure of large deals already being negotiated over the prior months. The pipeline is robust in areas like Cloud Migration, Remote Enablement and Security, said management.
We cut FY21/22E EPS by 3%/2% driven by the June’20 quarter miss and slightly lower revenue assumptions (as our expectations of gradual recovery in the Sep’20 quarter and normalized growth rates in H2FY21 remain unchanged). Valuations at ~27x/24x FY21/22E remain punchy. We retain Sell with an unchanged TP of Rs1,750.
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