Tata Con­sul­tancy Ser­vices

The Hitavada - - BUSINESS -

IN-LINE quar­ter; signs of im­proved de­mand in FY19 could emerge but val­u­a­tions and BFSI keep us on the side­lines; Stay N. TCS’ 3Q FY18 was in-line on rev­enues and mar­gins with rev­enue growth at 1.3% Q/Q con­stant cur­rency (CC) and EBIT mar­gins at 25.2% (in line with con­sen­sus). Weak­ness in BFSI dragged down rev­enue per­for­mance, but this was off­set by bet­ter trac­tion in other ver­ti­cals. It was par­tic­u­larly nice to see re­tail come back well. We would have liked to hear bet­ter com­men­tary on de­mand re­cov­ery in BFSI (Bank­ing, Fi­nan­cial ser­vices and In­sur­ance) from man­age­ment but the com­pany still seems to be in wait-and-watch mode in this ver­ti­cal (ris­ing in-sourc­ing at large in­vest­ment/money cen­ter banks could be caus­ing some of this weak­ness). Con­tri­bu­tion of dig­i­tal as de­fined by TCS con­tin­ues to smartly grow, now touch­ing 22.1% of rev­enues (grow­ing 39.6% Y/Y and 13.9% Q/Q). In­dus­tri­al­i­sa­tion of dig­i­tal the me hit­ting the in­flec­tion point in 2018/19 to­gether with BFS come­back are two fac­tors which may lead to im­proved rev­enue growth for TCS in FY19 by 1-2% points. That said, both th­ese fac­tors must ma­te­ri­alise. Un­less they do, it is dif­fi­cult for us to see TCS break out of the 6-8% Y/Y CC rev­enue growth tra­jec­tory TCS has been in for the past 3-4 quar­ters.

Cur­rent val­u­a­tion of 19.2x on FY19E EPS ap­pears punchy, fac­tor­ing in hopes of a de­mand im­prove­ment in FY19. Re­tain N with new Mar-19 PT of Rs2,700.

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