MOSL: TCS (Neutral)-Margin aspirations face a stern test
​TCS: Margin aspirations face a stern test
(TCS IN, Mkt Cap USD70.4b, CMP INR2309, TP INR2400, 4% Upside, Neutral)
- Mirrors opportunities and concerns similar to INFO: Retail and BFSI dragged TCS’ 4QFY17 CC revenue growth to 1% QoQ, (compared to our estimate. of +2%). Like Mirroring INFO, TCS demonstrated strength in Communications, cited concerns in Retail, and optimism in BFSI through the course of the year. We now model 8.2% CC revenue growth for FY18E, which implies a CQGR of 2.1% (v/s 1.8% in FY17).
- We see margins contraction decline YoY: 4Q margin at 25.7% contracted was down 40bp QoQ to 25.7%, and in line with our estimate. While TCS continues to target 26-28% EBIT margins, we believe offsets to recent currency movements will only come gradually, driving our assumption of 50bp YoY contraction decline in FY18E EBIT margin to 25.2%. 4QFY17 PAT declined 2.5% QoQ to was INR66b, -2.5% QoQ(, above our est. imate of INR62b), due to a lower forex impact. A Stronger stronger INR and our estimate of lower margin implyies 4.7% earnings growth estimate for FY18E.
- Expecting two 2 off the three weak verticals to recover: BFSI, Retail and Hi-tech were the key drags in FY17, out of which TCS expects to see a recovery in BFSI and Hi-Tech next year. The stronger verticals will likely see continueds traction, although the outlook is more of cautious optimism in Communications and Manufacturing.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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