Fundamental Result Update

Tata Consultancy Services Q3FY20 - Result Update



TCS came out with reasonable set of numbers in Q3FY20, missing our estimates marginally. Consolidated revenue stood at Rs 398,540 mn, just below our estimate of Rs 401,017 mn, registering +6.7% YoY/+2.3% QoQ growth. Consolidated EBIT stood at Rs 99,740 mn, below our estimate of Rs 104,264 mn increasing by +4.3% YoY/+6.5% QoQ. As far as margin is concerned, EBIT margin contracted 59bps YoY to 25% due to higher employee costs and depreciation expenses. Consolidated PAT saw a muted growth of 0.2% YoY to Rs 81,180 mn, below our estimate of Rs 82,209 mn. Factoring the satisfactory results, we maintain our Hold rating on the stock, with a Target Price of Rs 2,331 considering the company’s steady state performance despite global headwinds and trade tensions while a buoyant US market will be very helpful when it finds windows for expansion.

 

Outlook & Valuation: TCS had good traction in Q3FY20 despite a seasonal weakness in BFSI segment during the quarter. The attrition rates have risen in the quarter to 12.2% in the last 12 months which is still lower than the industry. The company had registered healthy growth in the Life sciences & health care space. While business in other segments had been stable for the quarter. Going forward, we believe TCS can deliver industry-leading growth and have positive view on the stock, however acknowledging the fact that margins will be tepid due to industry wide supply side pressure. At CMP of Rs 2220, TCS is trading at a P/E of 23.8x its FY21E earnings. We maintain our Hold rating on the stock with revised target price of Rs 2,331 valuing it at 25x FY21E EPS, with an upside of 5%.


Tags: ResultsFundamentalResult Update


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