Views on TCS 3QFY2016 Result: Angel Broking

Views of Ms. Sarabjit Kour Nangra (VP Research - IT, Angel Broking) on TCS - 3QFY2016 Results:

"TCS, posted numbers has been lower than expected for its 3QFY2016 results, mainly on the top line, while the EBDITA and net profit were in line and higher than expected respectively. Company posted a 0.3% sequential de-growth in USD revenues to US$4,145mn V/s expectations of US$4,177mn. On, Constant currency terms (CC), the company posted a QoQ growth of 0.5%, mainly impacted on back of the Indian business. The International business posted a 1.1% QoQ during the quarter. In rupee terms, revenues came in at INR 27,364cr V/s INR 27,538cr, up 0.7% QoQ.

In terms of geography, the North America posted a 1.4% QoQ (CC) terms, UK posted a de-growth of 0.7% (CC), while Continental Europe posted a 2.3% QoQ (CC) terms. India and Asia Pacific posted a QoQ (CC) growth of (6.7) % and 0.4% respectively. Latin America posted a QoQ (CC) 13.3% during the quarter. In terms of domains, the QoQ (CC) growth in BSFI was 0.7%, Retail & Distribution was 0.3% , Manufacturing was 2.3%, Telecom was 0.3%, Life Sciences & Healthcare was 4.1%, Hi-Tech was 2.0% and Energy & Utilities was 1.6%.

On operating front, the EBITDA margin came in at 26.6% V/s 26.4% expected a downtick of 47bp QoQ, benefiting by the currency. Consequently, PAT came in at INR 6,110cr V/s INR 5,999cr expected, a growth of 0.9% QoQ.

The employee utilization was 84.9% (excluding the trainee) and 80.9% (including trainee), while attrition was 15.3% in IT services and 15.9% including the BPS, down 30bps. In demand terms, the no of US$100mn+ clients increased by 1 to 34; no of US$20mn+ client's increase by 2 to 173. Overall, there were 9 key wins; 3 in North America, 3 in Europe, 2 in Latin America and 1 in UK.

On stock perspective, the stock has witnessed a strong underperformance amongst its peers. After the underperformance the company currently trades at a very attractive levels of 16.2xFY2017E earnings, which we believe given the ROE of the company which is ~+35%, is very attractive. Hence current weakness should be utilized by the investors to get into the stock with a long term view, as the business demand and order inflow remains intact and the company is confident of maintain its profitability, which has been the case. So we maintain our BUY rating on the stock (while the target on the stock is under revision)."

Shares of TATA CONSULTANCY SERVICES LTD. was last trading in BSE at Rs.2277.6 as compared to the previous close of Rs. 2279. The total number of shares traded during the day was 59597 in over 4773 trades.

The stock hit an intraday high of Rs. 2282.5 and intraday low of 2243.75. The net turnover during the day was Rs. 134972435.

Source : Equity Bulls

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