MOSL: TCS (Neutral)-Sluggish revenue growth (marginal miss)…but strong execution on margins
​TCS: Sluggish revenue growth (marginal miss)…but strong execution on margins
(TCS IN, Mkt Cap USD73.9b, CMP INR2549, TP INR2450, 4% Downside, Neutral)
No pick-up in revenue momentum...: TCS' 1.7% QoQ CC revenue growth was marginally below our estimate of +2.2%, led by a 150bp QoQ realization drop (fell for the second consecutive quarter). YoY CC growth remains at 6.9%. BFSI (4.7% YoY CC), Retail (-1.7% YoY CC) and US (3.6% YoY CC) remain weak. As Digital continues to grow, the timing of a turnaround in the weaker areas remains hard to call, keeping our growth bets modest.
...but impressive execution on margins: EBIT margin expansion of 170bp QoQ (est. of +80bp) to 25.1% was a positive surprise. The expansion in margin was contributed by multiple line items across COGS and SGA, and not by any single driver. Execution was particularly impressive, considering the drop in realization and the lack of growth support. However, the very factors will also test the sustainability of this upward trajectory toward the aspired range of 26-28%.
Addition to client buckets reflects prowess: TCS saw healthy client additions across its revenue buckets (USD1m+ to USD100m+), marking its ability to continuously mine accounts, despite pressure in the legacy portfolio. However, it is the discord with overall company growth that limits the extent of positivity with which one may read the same. Management cited trends such as the second digital wave in BFS and the offline retailers' return to the battlefield as potential positives, even though it remains uncertain when these will culminate into accelerated growth.
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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