EUR 120.00 For Business Accounts Only

MOSL: TCS (Neutral)-Transformative capabilities allowing choice of higher value-Impact from supply situation minimal

TCS: Transformative capabilities allowing choice of higher value; Impact from supply situation minimal; macro good, but caution merited for CY19

(TCS IN, Mkt Cap USD108.1b, CMP INR2015, TP INR2000, 1% Downside, Neutral)

 

We met TCS’ management. Key highlights:

• While growth momentum remains intact for now, one needs to be cautious on the likelihood of the same sustaining through the course of CY19. Barring Automotives and Hi-tech, traction is sanguine in other segments of the business.
• As incremental growth in recent years has tapped into clients’ non-CIO (i.e. business) budgets, the coupling with clients’ business fortunes is higher. While this means greater stickiness and more opportunities, it also implies a natural impact on business at par with that of its customers.
• TCS’ prowess in proactive Transformative Digital deals helps it win its share of large deals that have greater value than plain cost takeout engagements. This also drives its comfort in sustained growth over the medium-to-long term by participating in clients’ transformation.
• The recent uptick in sub-contractor expenses was more a function of excess demand in a seasonally weak quarter than the supply planned, and hence, it should correct over time. That, combined with industry lowest attrition and significantly reduced dependence on visas, keeps TCS’ outlook of 26-28% EBIT margin intact.