Dolat Capital recommended reduce rating on Tata Consultancy Services with a target price of Rs 2070 in its research report dated July 09, 2020.
Dolat Capital's research report on Tata Consultancy Services
TCS reported revenue decline of 6.9% QoQ in CC terms (DART estm was 5% de-growth) and a OPM decline of 150bps to 23.6% (our estm at 40bps decline) due to weak operating leverage. Reported PAT below estimate at Rs70.1bn. (DE: Rs.77.7Bn). Announced dividend of Rs 5. Signed TCV of US$6.9bn implying 1.31x coverage on TTM basis which is slightly below our expectations. TCV addition is encouraging however, the delayed ramp-up may continue to disappoint going forward as well. Also large contribution from smaller deal in order mix implies constant need for refill to sustain the revenue run rate. TCS believes that revenues have bottomed out in Q1 and Q2 will lead growth path also have supply-side tailwinds of about 135bps QoQ. Weaker than expected execution and not-so-confident tone for Q2 would mean the stock may remain under pressure till it delivers.
Outlook
Accounting for the deeper-than-anticipated slide in Q1 and softer-than expected commentary on recovery; we have curtailed our FY22E growth/earnings estimates by 2%/5% respectively and retain our Reduce rating on the stock with TP of Rs2070 valued at 22x FY22E earnings (in-line with its 3 year median PER).
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