Tata Consultancy Services Ltd. share price target

Tata Consultancy Services, a division of Tata Sons Limited, is a global IT services organization that provides a comprehensive range of IT services to its clients in diverse industries. The Company, caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing,...

Tata Consultancy Services (TCS) reported Q1FY21 result, Impact of the pandemic played out broadly in line with expectations Tata Consultancy Services (TCS) for the quarter ended Jun 2020 reported a consolidated revenue of Rs 38322 crore, a fall of 4% compared to sequential previous quarter ended Mar 2020 revenue of Rs 39946 crore. Lower revenue for the quarter is largely as revenue of all...

TCS's Q1FY21 revenue decline of 6.9%/7.8% QoQ/YoY in CC was a miss to our forecast. EBIT margin of 23.6%, -150bps QoQ was also a miss. Further, higher than expect effective tax rate (ETR) resulted in higher miss at EPS level. In Q1, TCS has secured deals with TCV of US$6.9 bn (ex-Phoenix Standard Life deal) vs. US$5.7 bn YoY. TCS believes that the impact of Covid-19 pandemic has bottomed out in Q1FY21 and has maintained its revenue growth outlook for rest of FY21. We factor Q1FY21 miss and cut FY21E/22E revenue (US$) by 3%/2.5% and EPS by 2.6%/2.9%. We now forecast FY21 revenue to decline by 5.1% YoY and revive to a...

TCS Q1FY21 earnings were below our estimates on all fronts as Covid-19 pandemic disrupted the business performance of the company. Consolidated revenue stood at Rs 3,83,220 mn, below our estimate of Rs 3,95,458 mn, registering +0.4% YoY/-4.1% QoQ. Consolidated EBIT stood at Rs 90,480 mn, down by -1.9% YoY/-9.7% QoQ. On the margins front, EBIT margin contracted by 54bps YoY to 23.6% due to higher employee costs and depreciation expenses. Consolidated PAT saw a decline of 13.8% YoY to Rs 70,090 mn, vs 81,270 mn in Q1FY20 due to lower other...

TCS reported sluggish results in Q1FY21; revenue stood at Rs. 38,322 crs a decline of 4% QoQ and 7.1% QoQ in CC terms. Operating profit showed a de-growth of 10% QoQ at Rs. 9,048crs, while operating margin declined by 150 bps QoQ at 23.6% due to lower utilization and pricinng pressure.

More importantly, continued traction in large deals, a healthy pipeline, and better resilience in BFSI are encouraging Management believes the worst impact of COVID-19 is behind (both in terms of revenue and profitability) even as some variables such as pricing and working capital cycles warrant a close watch. TCS reported revenue (CC) / EBIT / PBT/ PAT declined 6.3%/2%/11%/14% As in the case of Accenture, the Healthcare vertical reported robust growth (~14% YoY, CC), led by work related to contact tracing applications, etc. Over the medium term, we expect TCS to be a key beneficiary of the COVID-19-driven increase in technology intensity across Rich multiples (22x FY22E EPS) leave limited upside in the stock, in our view. In this vertical, while the UK and Canadian markets remained soft, Barring continental Europe (+2.7% YoY), key geographies such as North America (-6.1% YoY) and the UK (-8.5% YoY) reported declines.

TCS's Q1FY21 performance was a mixed bag with a miss on operating performance but healthy deal wins.

We expect demand recovery from 2Q-3Q, supported by (1) strong digital playbook, (2) recovery in deal contracting with increase in consolidation deals (advantage Indian Tier-1s) as enterprises consolidate their tech portfolio, and (3) tech budget normalisation in 2Q for impacted verticals. Following -1.5/-6.0% QoQ in 4Q20/1Q21E, we have factored -0.6/+1.5/+2.8% QoQ in revenue over 2Q-4Q21E. The IT sector margin is expected to decline 95bps QoQ. Profitability is expected to be impacted by lower utilisation, pricing, cross-currency (GBP), lower forex gains and should be offset by (1) INR depreciation, (2) lower travel and discretionary spend, (3) deferral of wage increase and variable payouts cuts/deferrals, and (4) lower sub-contracting. We expect the margin trajectory to bottom out in 2Q. Subsequent margin recovery is premised on (1) demand recovery leading to utilisation recovery (onsite utilisation to precede offshore), and (2) continuity in optimal SG&A, including travel and sub-contracting rationalisation. IT sector (coverage universe) is expected to post -6.1/-3.7% QoQ/YoY in 1QFY21E revenue with cross-currency impact of -15 to -70bps QoQ. We expect Tier-1 IT revenue to decline between 5% and 9% QoQ while Tier-2 IT is expected to display a wider divergence (-2 to -14% QoQ). COVID-related economic impact on sectors like travel and transportation, O&G;, retail & CPG (discretionary) will be accentuated in 1Q (dual impact of price/volume cuts and deal deferrals/cancellations), while BFSI, healthcare, retail & CPG (non-disc.) and hi-tech verticals will be more resilient (deal-deferral impact, but resilient on pricing/volume).

Global 5G rollout is estimated to offer a mega US$ 10bn business opportunity for Indian IT players.

In terms of order book, co have the highest TCV in signed deals this quarter. The overall order book signed in the quarter was at $8.9 billion and BFSI stood at about $2.4 billion, while Retail was $3.1 billion, which includes the $1.7 billion of the Walgreens deal that was announced earlier. In both cases, these are the highest ever figures. TCV from deals signed in North America as a region stood at $5.3 billion. TCS is a IT solution provider. Company offers a consulting led integerated portfolio of IT & IT enabled services delivered through its unique global network delivery...