Tata Consultancy Services Ltd. share price target

ICICI Securities Ltd | Retail Equity Research TCS reported soft earnings in Q2 as revenue growth was marginally below our estimates while margins were slightly higher. US$...

17.6% YoY CC in 3QFY15. Company-specific pockets of stress of FY16 (Diligenta, Latin America, Japan) have been replaced by more secular cyclical pressures in BFSI and Retail. More importantly, while there have not been any cancellations and weakness is due to delays in deal ramp ups; visibility of these coming...

Implied’ profit warning: In a recent press release, TCS management has stated that at the end of August 2016, it sees holding back of discretionary spending from clients, particularly in US BFSI segment – leading to sequential loss of momentum in Q2FY17. We note that this ‘implied’ profit warning comes after a strong Q1FY17, where the company delivered results ahead of expectations, on almost all counts. Also, for long, the management had been denying any significant headwinds, particularly in the BFSI space.

Outlook and valuation: We downgrade our FY17/18 earnings estimates by 6%, on the back of expected poor performance in Q2. We now see TCS reporting 7.8% USD revenue growth in FY17 – significantly below NASSCOM guidance (10-12%). Also, we believe that the company will find it difficult to maintain margins in its ‘comfort zone’ as most of the levers like utilization (at peak level when last reported) and attrition (lowest in last eight quarters) have already been utilized.They continue to value the company at 17x FY18 P/E. Our price target of Rs 2400 (Rs 2550 earlier), maintain NEUTRAL.

Weakness in BFSI discretionary spending in the US is likely to result in sequential momentum loss. Pull back in discretionary spending will hurt margins too, in our view. We now expect constant currency (CC) revenue growth of 2.7% in 2QFY17 v/s 3.6% earlier, and cut our FY17E/18E USD revenues by 1%/1.7% and earnings by 2.6%/3.8%.Their revised target price of INR2,500 discounts FY18 EPS by 17x, and implies 8% upside. Maintain Neutral.

TCS posted a 3.7% sequential growth in USD revenues to US$4,362mn for 1QFY2017 (V/s US$4,375mn expected), which was mostly volume led (3.4% qoq growth). On constant currency (CC) basis, the revenue growth is of 3.1% qoq. On the operating front, the EBITDA and EBIT margins came in at 26.7% and 25.1%, a dip of ~97bp and ~98bp qoq respective..

Q1FY17 revenue growth of 3.1% QoQ (in CC) and 3.6% (in US$) was slightly lower than our forecast of 3.5% and 4.1% respectively. However, EBIT margin of 25.1%, -100bps QoQ, beat our forecast of 24.5%. EPS of Rs32.1, unchanged QoQ, was ~4% higher than our forecast. Digital solutions continued to fire with a 6.4%/37.5% QoQ/YoY growth. Deal pipeline for these solutions remains strong. TCS has already trained 165k employees for these solutions and targets to train all its employees over the medium term. In Q1FY17, TCS continued to see growth in large clients with US$50 mn+ clients +4 QoQ to 77. Further, it secured 9 large multi-year deals....

Q1FY17 revenue growth of 3.1% QoQ (in CC) and 3.6% (in US$) was slightly lower than our forecast of 3.5% and 4.1% respectively. However, EBIT margin of 25.1%, -100bps QoQ, beat our forecast of 24.5%. EPS of Rs32.1, unchanged QoQ, was ~4% higher than our forecast. Digital solutions continued to fire with a 6.4%/37.5% QoQ/YoY growth. Deal pipeline for these solutions remains strong. TCS has already trained 165k employees for these solutions and targets to train all its employees over the medium term. In Q1FY17, TCS continued to see growth in large clients with US$50 mn+ clients +4 QoQ to 77. Further, it secured 9 large multi-year deals....

Top takeaways from Q1FY17 : Revenue grew 3.7% qoq in USD (CC growth of 3.1%); higher than our (+3.2%) but in-line with street expectations (+3.8%). The company reported highest incremental revenue in the last seven quarters (US$155mn).HDFC Securities price target of Rs 2,700 (unchanged) represents a 7% upside from current levels maintain NEUTRAL.

Trendlyne has 18 reports on TCS updated in the last year from 7 brokers with an average target of Rs 2709.7. Brokers have a rating for TCS with 6 price upgrades in past 6 months and 8 price upgrades,5 price downgrades,2 downgrades and 1 upgrades in past 1 Year.

TCS’ growth moderation, accentuated by its scale and region-specific headwinds (US slowdown and Brexit, Japan challenges), waters down our optimism derived from improving service-line performance (engineering, infra services), large client metrics and lower attrition. Incremental revenues in 1Q were 10% higher than five-year average, primarily driven by increased digital services (traction in Ignio platform). But this was mitigated by deceleration in ADM services, BFSI (core vertical) and volatility in India/LatAm business.Phillip Capital maintain NEUTRAL with a TP of Rs 2,680, 18x FY18E EPS (~1% earnings upgrade for FY17E/18E).

Trendlyne has 18 reports on TCS updated in the last year from 7 brokers with an average target of Rs 2709.7. Brokers have a rating for TCS with 6 price upgrades in past 6 months and 8 price upgrades,5 price downgrades,2 downgrades and 1 upgrades in past 1 Year.

ICICI Securities Ltd | Retail Equity Research In Q1FY17, TCS reported better quarterly earnings as margins were above our estimates. US$ revenues grew 3.7% QoQ to $4,362 million vs. our 3.6% growth, $4,358.5 million estimate Constant currency revenues grew 3.1% QoQ led by volumes (3.4% QoQ) partly offset by a drop in realisations (~30 bps) At 25.1%, EBIT margins declined ~100 bps QoQ weighed by wage hike (-200 bps), currency headwind (-20 bps) partly offset by...