Tata Consultancy Services (TCS) the largest IT services exporter in India has witnessed strong demand in Q3FY19 across segments. Strong traction was also seen in digital space, digital space reported strong growth of 53% for Q3 FY19 on YoY basis.

Maintain BUY with TP of Rs 2,430, at 24x Dec-20E EPS, supported by leading organic growth within tier-1 IT and >60% RoIC, >4% FCF yield & >3.5% dividend yield. TCS posted acceleration in revenue (in-line) supported by strong digital traction (53% YoY) and continued revival in BFSI. However, margins were lower on increased hiring and higher sub-contracting expense (both indicative of buoyant demand). Rev came at USD 5,250mn, 1.8/12.1% QoQ/YoY CC with digital at 30.1% of rev (USD 6.3bn rev annualised).

A Double-digit FY20? Not Yet. Talent Hoarding Impacts Margins In 3QFY19, TCS' constant currency (CC) QoQ revenue growth at 1.8% (12.1% YoY) was in line with expectations. However, EBIT margin slipped to 25.6% (our estimate 27.2%). This has been because of lower gross margin and higher-than-expected SG&A; expenses as a significantly talentconstrained market for new age services, primarily in the US, led to what we believe as talent hoarding by TCS. That, in our view, is a pre-emptive move by TCS to handle demand fulfilment problem that players like DXC, Hexaware and Persistent Systems specifically and the industry in general has talked of in recent times (Refer: Onsite Supply Bottleneck Unlikely A One-Off). It also potentially addresses a tighter market for H1-B visas under the new rules (Refer: Likely Change In...

Robust TCV Growth Signals Strong Biz Momentum; Margin Disappoints Tata Consultancy Services (TCS) has reported a decent CC revenue growth of 1.8% QoQ in 3QFY19, while USD revenue came in softer-than-expected at US$5,250mn (+0.7% QoQ, below our estimate by 0.8%) owing to a higher-than-expected adverse cross-currency impact. Its TCV order bookings grew by a robust >20% QoQ to US$5.9bn (vs. US$4.9bn in 2QFY19), with bookto-bill rising strongly to 1.12x (vs. 0.94x in 2QFY19), which signals a strong traction in underlying business growth. On the flip side, its EBIT margin declined by 90bps QoQ to 25.6% (missing our estimate by 73bps) owing to higher wage cost and SG&A; expenses. Net profit rose by 2.6%...

We largely maintain our FY19E/20E revenue (in US$) and tweak EPS forecast by -1.0%/1.7% (FX of Rs70 for Q4FY19 and FY20). We maintain ACCUMULATE with new TP of Rs2,084 (vs. Rs2,121 earlier) based on 22x FY20E. Q3FY19 CC revenue growth of 1.8%/12.1% QoQ/YoY despite seasonal weakness Both QoQ CC growth and US$ growth of 0.7% was in-line with our forecast. While smaller verticals like Life Sciences & Healthcare (7.6% of revenue; +15.7% YoY in CC) and Energy & utilities (4.7% of revenue; +18.1% YoY) grew faster, larger verticals like Retail & CPG (16.5% of revenue; +10.5% YoY) also saw good growth. Importantly, BFSI (30.8% of revenue) saw improvement in growth to +8.6% YoY....

TCS posted a 0.7% sequential growth in USD revenues to US$5,250mn v/s US$5,215mn in 2QFY2019. In rupee terms, revenues came in at `37,338cr V/s `36,854cr, up 1.3% QoQ. In Constant Currency (CC) terms, the company posted a 1.8% QoQ growth. On profitability front, EBIT margin showed a dip of ~90bps QoQ to 25.6%. Consequently, PAT

10 January 2019 EBITDA increased 21.7% YoY (5% miss) and PAT grew 24.1% YoY (our the US, as evident from the 70bp QoQ uptick in subcontractor expenses. TCS cited that demand on the ground was very healthy and broad-based across regions and verticals. This was reflected in deals TCV of USD5.9b v/s USD5b in the previous two quarters, with healthy contribution from North America (USD3b+), BFSI (USD2b+) and Retail CPG (USD800m+). With respect to elevated onsite cost, TCS expects it to rationalize over a period of time via investments in training and also passing some of it to clients. The trend of supply shortage was called out by a few companies in 2QFY19 (INFO, MTCL and HEXW), which cited challenges in demand fulfilment at onsite. TCS 9MFY19 EBIT margin of 25.7% is after YoY INR depreciation of 8.4% for this period.

We recently met the management of TCS to discuss its outlook on the demand environment, revenue growth trajectory going forward, its digital strategy and potential challenges relating to H1-B visa issues...

TCS posted a 3.2% sequential growth in USD revenues to US$5,215mn v/s US$5,051mn in 1QFY2019. In rupee terms, revenues came in at `36,854cr V/s `34,261cr, up 7.6% QoQ. In Constant Currency (CC) terms, the company posted a 3.7% QoQ growth. On profitability front, EBIT margin showed an upside of ~148bps QoQ to 26.5%. Consequently, PAT came ..

India's biggest software exporter Tata Consultancy Services Q2 profit jumps 23% YoY to Rs 7,901 crore, meets Street estimates Sequentially TCS registered an 8% rise in consolidated sales to Rs 36854 crore for the quarter...

TCS posted solid performance in Q2FY19 with strong dollar revenue growth of 3.2% QoQ (CC revenue growth of 3.7%). Revenue outperformance was driven by broad based growth across segments and service lines. Further robust demand for digital services coupled with continued traction in BFSI and retail verticals also aided growth. Digital business continued to perform well with revenue contribution increasing to 28% in Q2FY19 from 25% in Q1FY19. Notably, BFSI (31.2% of overall revenue) and retail (16.6%) verticals continue to gain momentum with revenue growth of 3.5% and 3.4% QoQ respectively. Additionally,...

Tata Consultancy Services Ltd Q2FY19 results Comment Revenue grew by 7.57% to Rs. 36854.0 Cr in Q2FY19 when compared to the previous quarter. Also, it grew by 20.67% when compared with Q2FY18.

Maintain BUY with TP of Rs 2,400, at 24x Sep-20E EPS supported by >60% RoIC and >4% FCF yield TCS strong performance (in-line) was digital-led and driven by momentum in core verticals, robust client metrics and deal signings. Revenue came at USD 5,215mn, 3.7/11.5% QoQ/YoY in CC terms (3.5% QoQ est) which was its fastest growth in three years (in YoY CC terms). EBIT margin was in-line at 26.5%, +148bps QoQ (26.3% est) impacted by INR depreciation. APAT stood at Rs 79.27bn, 7.7% QoQ supported by lower ETR

TCS reported healthy constant currency (CC) revenue growth of 3.7% QoQ (vs. our estimate of 3.9% QoQ) and rupee depreciation led margin expansion. In US$ terms, revenues grew 3.2% QoQ to $5,215 million mainly led by healthy demand from BFSI (31% of overall revenues) and retail (17% of overall revenues) vertical Rupee revenues grew 7.6% QoQ to | 36,854 crore, above our 6.3% growth expectations of | 36,403 crore estimate At 26.5%, EBIT margins expanded 150 bps QoQ (vs. our 26.5%...

Double-digit Growth Finally, But Sustenance In FY20 Will Be The Hard Part After a gap of two years, TCS has got back to growing its revenues at a double-digit rate (YoY) in CC terms in 2QFY19 11.5%. Besides a better macro, TCS indicated an improvement in its market share that drove this performance. TCS indicated that double-digit growth will continue in 2HFY19, despite seasonality. We believe sustenance of this beyond FY19 will be a tough task in the weak global macro backdrop that seems to be developing in 2019, after a rather supportive one in 2018 (see our recent report Peaking Global Capex Cycle). In FY19, TCS has been the only Tier-1 Indian player, despite its large size, to deliver double-digit organic growth - expectations at the beginning...

TCS's Q2FY19 result was in-line with our forecast as regards reported US$ growth, EBIT and EPS. However, there was a slight miss as regards CC revenue growth which came at 3.7% QoQ (vs. our forecast of +4.5%) and EBIT margin improvement of +150bps to...

TCS reported an in-line operating performance in Q2FY19 with 3.7% QoQ CC (+11.5% YoY) revenue growth and 26.5% EBIT margins. YoY growth returned to double-digit trajectory after nine quarters and management is confident of rounding off the year with similar momentum. TCS remains our preferred pick amongst IT large-caps due to its (1) systematic and timely investment in digital capabilities, (2) growth visibility buoyed by recent large...

TCS won US$4.9bn TCV in 2QFY19 (similar to 1QFY19), implying book-to-bill ratio of 0.94x. BFSI accounted for the maximum value of US$1.5bn (US$1.6bn in 1QFY19). Like the previous quarter, TCS witnessed broad-based revenue growth in 2QFY19 with most verticals clocking healthy growth in CC terms, barring MFG, COMM and ENU. Improving growth momentum in BFSI and Retail verticals is the biggest positive, in our view. Looking ahead, we expect the IT major to clock double-digit growth in FY19E both in CC and USD terms. Digital hit 28.1% of total revenue (25%), clocking a robust 16.5% QoQ CC revenue growth. On margin front, TCS has hit a level within its...

of 26.5%, up 150bps qoq. Revenue growth was driven by strong growth in Digital up ~16% qoq; ~28% of sales. The improvement in margins was led by the INR's depreciation (120bps) and improvement in operational efficiencies (30bps). TCS assured double-digit growth (CC terms) in FY19 on the back of large deal wins (US$9.8bn so far in H1FY19) and a strong pipeline. However, there was no improvement in its commentary for the overall sector per se, which we believe, questions street's sector wide optimism of uptick in IT spending. TCS attributed its strong momentum to its differentiated capabilities (Machine first), and...

performance for 2QFY19 with a modest beat on constant currency revenues Change in Estimates | Target | Reco and steady performance on EBIT margins. However, lower other income led...