MOSL: TCS (Neutral)-In-line quarter-Green shoots in North America BFS-Margin execution is imperative for an upside

TCS: In-line quarter; Green shoots in North America BFS; Margin execution is imperative for an upside

(TCS IN, Mkt Cap USD92.9b, CMP INR3191, TP INR3000, 6% Downside, Neutral)

• In-line, but segmental trends varied: 4Q revenue of USD4,972m grew 12% YoY (est. of +11%) and 7.2% CC (in-line). EBITDA of INR86.5b grew 6% YoY (in-line), while PAT of INR69b rose 6% YoY (est. of +5%). USD revenue growth of 3.9% QoQ exceeded our estimate due to better cross-currency tailwind (190bp). While CC revenue was in line, BFSI (0.4% QoQ CC) and Retail (0.8% QoQ CC) were tepid; we expected deals to drive momentum here.
• Positive outlook on growth…: TCS cited that, despite the blip in Retail, it should grow in double-digits in FY19. More importantly, it expects the business from large banks in North America to have bottomed out and spending to pick up. That said, it would wait for another quarter before committing to its outlook of a turnaround.
• …and margin band retained: TCS delivered 24.8% EBIT margin in FY18, and 25.5% excluding the impact from currencies. Marginally below its aspired band of 26-28%, EBIT margin is guided to get back into that range (however, TCS refrained from guiding for the same for FY19). The key levers at the company's disposal for the same are: (i) an improvement in the larger industries, such as BFS and Retail in North America, which is expected to drive overall revenue growth revival and (ii) an increasing scale of operations in Digital, providing more room for optimization within the segment.