Here’s how analysts reacted to TCS Q4 earnings numbers
Domestic IT behemoth Tata Consultancy Services (TCS) disappointed with its March quarter numbers on Tuesday, as it posted 2.51 per cent quarter-on-quarter (QoQ) drop in bottom line at Rs 6,608 crore, while net sales de-grew 0.3 per cent QoQ to Rs 29,642 crore.
Shares of the company closed 0.53 per cent down at Rs 2,308 before the release of earnings numbers.
Analysts on Dalal Street said the stock may react negatively/positively to the March quarter earnings on Wednesday.
Here’s how different analysts reacted to the earnings numbers.
Analysts on Dalal Street said the stock may react positively to the March quarter earnings on Wednesday.
Sanjeev Hota, AVP – Research, Sharekhan by BNP Paribas
There is no major positive surprise in the earnings performance, revenues and margins were both in line with expectations, net income beat was largely driven by higher other income. Only solace is digital revenues, which grew by 29% for FY17, much ahead of company levels growth. We still see pain for the entire IT sector to continues given the uncertainties in the macro environment, new visas regime and pricing pressure in legacy services line, we maintain our hold rating on TCS on the stock with a TP of Rs 2,450.
Sarabjit Kour Nangra, VP Research- IT, Angel Broking
The company posted revenue of $4,452 million against $4,470 million expected with 1.5 per cent QoQ growth mostly volume led, which was 1.7 per cent QoQ. Constant Currency (CC) came in at 1 per cent QoQ. In rupee terms, revenues are expected to de-grow by 0.3 per cent QoQ to Rs 29,642 crore against Rs 29,996 crore expectations, lead by rupee appreciation. We maintain our BUY rating with a target price of Rs 2,700.
Dipen Shah, Sr Vice President - Kotak Securities
TCS’ results were marginally lower than our estimates with CC revenue growth at 1% (our expectations of 1.2%) and lower EBIT margins QoQ. BFSI and Retail once again impacted overall growth rates. US revenues also de-grew by 1.8% QoQ. Growth in BFSI and in US has remained largely muted over the past few quarters. The management has maintained its positive outlook on BFSI for FY18, though, based on client interactions. We will monitor the same, going ahead. While we continue to repose faith in the medium term prospects of the company, TCS will need to achieve higher growth rates and maintain margins to sustain its premium valuations.
Emkay Global Financial Services
We are more surprised by the weak revenue performance in Financial Services (-0.4% QoQ in cc terms), Retail (-3% QoQ in c.c terms) and North America (-1.8% QoQ) especially in the context of management’s indication of buoyant spending trends in US Financial Services clients (will wait for management clarification on this). TCS’s weak revenue performance in US and Financial Services on the back of Infosys’s commentary will certainly dent confidence on pick up in spending in the Financial Services space in FY18 and we await more qualitative commentary on this front.
TCS seems to be sticking to its EBIT margin band of 26-28% despite the miss in FY17 (FY17 EBIT margins at 25.7%) and recent INR appreciation challenges.
We do not see material changes to our FY18/19E EPS of Rs 140/ 152. We currently have a HOLD rating on TCS with a TP of Rs 2,420. At CMP of Rs 2,302, TCS trades at ~16.5x/15.2x FY18/19E P/E.
Shares of the company closed 0.53 per cent down at Rs 2,308 before the release of earnings numbers.
Analysts on Dalal Street said the stock may react negatively/positively to the March quarter earnings on Wednesday.
Here’s how different analysts reacted to the earnings numbers.
Analysts on Dalal Street said the stock may react positively to the March quarter earnings on Wednesday.
Sanjeev Hota, AVP – Research, Sharekhan by BNP Paribas
There is no major positive surprise in the earnings performance, revenues and margins were both in line with expectations, net income beat was largely driven by higher other income. Only solace is digital revenues, which grew by 29% for FY17, much ahead of company levels growth. We still see pain for the entire IT sector to continues given the uncertainties in the macro environment, new visas regime and pricing pressure in legacy services line, we maintain our hold rating on TCS on the stock with a TP of Rs 2,450.
Sarabjit Kour Nangra, VP Research- IT, Angel Broking
The company posted revenue of $4,452 million against $4,470 million expected with 1.5 per cent QoQ growth mostly volume led, which was 1.7 per cent QoQ. Constant Currency (CC) came in at 1 per cent QoQ. In rupee terms, revenues are expected to de-grow by 0.3 per cent QoQ to Rs 29,642 crore against Rs 29,996 crore expectations, lead by rupee appreciation. We maintain our BUY rating with a target price of Rs 2,700.
Dipen Shah, Sr Vice President - Kotak Securities
TCS’ results were marginally lower than our estimates with CC revenue growth at 1% (our expectations of 1.2%) and lower EBIT margins QoQ. BFSI and Retail once again impacted overall growth rates. US revenues also de-grew by 1.8% QoQ. Growth in BFSI and in US has remained largely muted over the past few quarters. The management has maintained its positive outlook on BFSI for FY18, though, based on client interactions. We will monitor the same, going ahead. While we continue to repose faith in the medium term prospects of the company, TCS will need to achieve higher growth rates and maintain margins to sustain its premium valuations.
Emkay Global Financial Services
We are more surprised by the weak revenue performance in Financial Services (-0.4% QoQ in cc terms), Retail (-3% QoQ in c.c terms) and North America (-1.8% QoQ) especially in the context of management’s indication of buoyant spending trends in US Financial Services clients (will wait for management clarification on this). TCS’s weak revenue performance in US and Financial Services on the back of Infosys’s commentary will certainly dent confidence on pick up in spending in the Financial Services space in FY18 and we await more qualitative commentary on this front.
TCS seems to be sticking to its EBIT margin band of 26-28% despite the miss in FY17 (FY17 EBIT margins at 25.7%) and recent INR appreciation challenges.
We do not see material changes to our FY18/19E EPS of Rs 140/ 152. We currently have a HOLD rating on TCS with a TP of Rs 2,420. At CMP of Rs 2,302, TCS trades at ~16.5x/15.2x FY18/19E P/E.
