Morningstar | TCS Finishes Fiscal 2019 Strongly; Automation and AI Good Drivers; Raise FVE but Still at a Premium
Tata Consultancy Services finished fiscal 2019 strong, with fourth-quarter revenue growth coming in at a rate not seen for a few quarters and margins expanding over the prior year. Secular trends, encompassed within the firm’s Business 4.0 framework, continued to be the underlying drivers of performance. We are maintaining our narrow moat and stable trend ratings for this IT services company. Though shares had a slightly unfavorable reaction, trading slightly lower after the results were announced, we continue to view them at a premium relative to our revised INR 1,635 fair value estimate (up from INR 1,480), which accounts for the time value of money and short-term revenue improvement. We would recommend investors wait for a wider margin of safety before committing new capital to the name.During the fourth quarter, the top line grew 18.5% to INR 380.1 billion; this translated to a 12.7% growth rate on a constant-currency basis. For the full fiscal year, revenue grew 19% on a reported basis and 11.4% in constant currency. The growth was broad-based, with verticals such as banking and financial services and life sciences and healthcare demonstrating strength. The firm performed admirably on the margin front, with full-year operating margin widening by 80 basis points to 25.6% from 24.8%.
The firm’s product suite continued to gain traction in the marketplace, with numerous customer wins during the quarter. Products like Ignio for cognitive automation and Mastercraft for IT process automation are proving valuable to IT departments. We are pleased with the firm’s progress and think that these products have myriad secular tailwinds, which augurs well for their adoption. As enterprises continue to embrace concepts like artificial intelligence and machine learning, while appreciating their implications for operational efficiencies across their organizations, we think TCS will be able to capitalize on these nascent opportunities.
Tata Consultancy Services provide consulting-led integrated portfolio of information technology (IT) and IT-enabled services delivered through a network of multiple locations around the globe. Co.'s full services portfolio consists of IT and Assurance Services, Business Intelligence and Performance Management, Business Process Services, Cloud Services, Connected Marketing Solutions, Consulting, Eco-sustainability Services, Engineering and Industrial Services, Enterprise Security and Risk Management, Enterprise Solutions, iON -Small and Medium Businesses, IT Infrastructure Services, Mobility Products and Services and Platform Solutions.
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