TCS (TCS IN) - Revenue growth way below street expectation - Cholamandalam Securities

In 2QFY17, TCS consolidated revenue stood at INR 292,840mn (-0.1% QoQ, +7.8% YoY), way below street expectation and lowest growth in company’s history; In CC terms revenue grew by 1% QoQ (+3.1% QoQ in 1QFY17) aided by volume growth of 1.3% QoQ. Dollar revenue stood at USD 4,374mn (+0.3%QoQ, 5.2% YoY).

Despite revenue headwinds, EBITDA margin expanded by 100bps QoQ to 27.7%; EBITDA grew 3.5% sequentially to INR 82,130mn. EBIT Margin expanded by 94 bps QoQ at 26% in 2QFY17 aided by operation efficiency. APAT grew 4.3% QoQ to INR 65,860mn, largely due to higher other income in 2QFY17 which grew by 9.2% QoQ.

Amongst geography, Europe, Asia pacific and North America grew by 3.7% QoQ, 3.5% QoQ and 1.4% QoQ in CC term respectively; while India declined by 7.6% QoQ and UK was flat during the quarter. Amongst verticals, Barring Communication media & others (+7.2% QoQ in USD terms) and BFSI other verticals witnessed de-growth during the quarter. Energy & utility, Manufacturing Hi-Tech, Retail CPG and Life Science & Healthcare declined by 4.5 QoQ/ 2.3% QoQ/0.8% QoQ /3.8% QoQ respectively in dollar term.

Valuation: Management has maintained the EBIT margin in the range of 26%-28%, implying further expansion over 2HFY17. Management indicated better performance in the next 2 quarters of 2HFY17 in terms of revenue growth, aided by India Business and retail deals. Management indicated that this was the unusual quarter for the company as uncertainties environment across the world holding discretionary spending. At CMP price stock is trading at P/E of 17.5X /16.5X FY17E and FY18E EPS. Based on the consensus, estimates we assign a target P/E of 17X on FY18E, with target price of INR 2,440 with MARKETPERFORMER rating.

Risks: Visa uncertainties, lower discretionary spend, pricing pressure, INR appreciation are key risks.

Shares of TATA CONSULTANCY SERVICES LTD. was last trading in BSE at Rs.2328.5 as compared to the previous close of Rs. 2380.1. The total number of shares traded during the day was 396220 in over 6377 trades.

The stock hit an intraday high of Rs. 2367.85 and intraday low of 2323.25. The net turnover during the day was Rs. 928524312.

Source : Equity Bulls

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