ICICI Direct recommended hold rating on Tata Consultancy Services with a target price of Rs 1880 in its research report dated dated October 12, 2018.
ICICI Direct's research report on Tata Consultancy Services
TCS reported healthy constant currency (CC) revenue growth of 3.7% QoQ (vs. our estimate of 3.9% QoQ) and rupee depreciation led margin expansion. In US$ terms, revenues grew 3.2% QoQ to $5,215 million mainly led by healthy demand from BFSI (31% of overall revenues) and retail (17% of overall revenues) vertical Rupee revenues grew 7.6% QoQ to Rs 36,854 crore, above our 6.3% growth expectations of Rs 36,403 crore estimate At 26.5%, EBIT margins expanded 150 bps QoQ (vs. our 26.5% estimate) mainly on account of rupee depreciation benefit (120 bps) and operational efficiency (30 bps) PAT of Rs 7,901 crore was in line with our Rs 7,905 crore.
Outlook
TCS reported a healthy performance across business segments though it was in line with our expectations. The positive outlook for BFSI and retail, pick-up in deal sizes and rupee depreciation are expected to play out well on the profitability front. However, keeping in perspective the macro environment uncertainty, we lower our valuation multiple to ~20x FY20E EPS and maintain our HOLD rating on the stock with a revised target price of Rs 1880.
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