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Hold Tata Consultancy Services; target of Rs 3260: ICICI Direct

April 20
20:25 2018

ICICI Direct’s research report on Tata Consultancy Services

US$ revenues grew strongly at 3.9% QoQ to $ 4,972 million, above our 2.4% QoQ growth and $ 4,901.9 million estimate. Constant currency revenues grew 2% QoQ Rupee revenues grew 3.8% QoQ to Rs 32,075 crore, above our 2.1% growth expectations of Rs 31,543.6 crore estimate At 25.4%, EBIT margins expanded 20 bps QoQ, marginally below our 50 bps expansion, 25.7% estimate mainly due to higher employee expenses (up 3.8% QoQ) & higher SG&A expenses (up 2.8% QoQ) PAT of Rs 6,904 crore was ahead of our Rs 6,720 crore estimate led by strong revenue growth and higher other income (Rs 982 crore vs. Rs 864 crore in Q3FY18) TCS has proposed a final dividend of Rs 29 per share taking the year dividend to Rs 50 per share. Moreover, Board of Directors has recommended a 1:1 bonus share issue.

Outlook

TCS reported a strong Q4FY18 on the revenue and deal momentum front. The management commentary on its key vertical such as BFSI and retails also indicate a pick-up in revenue growth in FY19E. However, the acceleration in revenue growth seems to be priced in current valuation (20.5x FY20E EPS). Hence, we maintain our HOLD rating on the stock with a revised target price of Rs 3260 (20x FY20E EPS).

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