Buy Tata Consultancy Services; target of Rs 3500: Sharekhan
Sharekhan’s research report on Tata Consultancy Services
During Q4FY2018, Tata Consultancy Services (TCS) delivered the highest incremental dollar revenue ($ 185 million) on sequential basis in the history of Q4, despite seasonality issues. Revenue growth was driven by strong performance in verticals such as energy & utilities and travel & hospitality along with geographies in Europe and APAC (Japan grew in double digits). TCS reported a higher-than-expected constant currency (CC) revenue growth of 2% QoQ in Q4FY18, led by volume growth of 2% QoQ. On a reported basis, revenues were up by 3.9%QoQ at $ 4,972 million. EBIT margins improved by 22bps QoQ to 25.4% (below our estimates) despite higher bonus payouts to employees, driven by currency benefits (40 bps). Net income during the quarter increased by 5.7% QoQ to Rs.6,904 crore. In FY2018, the revenue increased by 6.7% YoY on CC basis and 8.6% YoY on reported basis. EBIT margin contracted ~90bps YoY at 24.8% in FY2018, owing to wage hikes above industry standards, localisation and structuring innovative deals.
we expect TCS to continue to trade at a premium to its peers. Hence, we upgrade our rating on the stock to Buy from Hold with a revised price target (PT) of Rs. 3,500.
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