MOSL: Morning India (11/January/19): 1. TCS (Strong demand but cost pressures evident); 2. Bharti Infratel (Indus merger to accentuate earnings pressure); 3. Delta Corp (Growth dice rolling well in Casino); 4.
MOrning India (11/January/19): 1. TCS (Strong demand but cost pressures evident); 2. Bharti Infratel (Indus merger to accentuate earnings pressure); 3. Delta Corp (Growth dice rolling well in Casino); 4. GST (Reliefs continue for MSME)
Today’s top research idea
TCS: Strong demand but cost pressures evident
- TCS' 3QFY19 constant currency revenue grew 12.1% YoY (our estimate: +11.7%), but EBIT margin shrank 90bp QoQ to 25.6% (our estimate: 26.7%), led by elevated costs in the US, as evident from the 70bp QoQ uptick in subcontractor expenses.
- The strength in demand was reflected in deals TCV of USD5.9b v/s USD5b in the previous two quarters. The trend of supply shortage was called out by a few companies in 2QFY19 (INFO, MTCL and HEXW); and TCS' comments implies risk of pruning margins across the board, at least in the near term. Basis 9MFY19 performance, we believe that the aspired band of 26-28% may remain elusive for a while.
- Amid news of potential macro weakness, there is limited case to build further upside to our revenue estimates CAGR of 10%. Maintain Neutral.
Piping hot news
Govt doubles GST exemption limit for MSMEs
- In a major relief to micro, small and medium enterprises (MSMEs), the GST Council on Thursday doubled the tax exemption limit to ?40 lakh in annual revenue. The turnover limit for businesses availing of the GST composition scheme, which allows them to pay goods and services tax at a flat rate, was raised to INR1.5 crore.
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