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You are here : IndiaNotes >> Research & Analysis >> Companies >> Tata Consultancy Services Ltd. >> Research

Buy this IT major for medium & long term for a target of Rs2580

Suhani Adilabadkar | 30 Jan, 2017  | Follow Author | Add to my Favourites 
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QUARTERLY OUTLOOK & RECOMMENDATION

Industry Leader, Tata Consultancy Services Ltd reported strong third quarter results with Profit After Tax, Operating profit and Profit Before Tax all rising in double digits. Both EBDITA & PAT moved parallely rising 11% YOY and 3% sequentially. PAT or Net profit for the quarter stood at Rs. 68140 Mn against Rs. 61250 Mn same period previous year. EBDITA stood at Rs. 94210 Mn in Q3 FY17 compared to Rs. 84540 Mn in Q3 FY16.Profit Before Tax jumped 12% yearly whereas sequential growth was 3% in the current December quarter. Revenue or Income from operations exhibited slow quarterly growth of 1.54% although YOY rise was 8.66% in the current December quarter. Growth momentum was evident in every aspect including other income in the traditionally weak December quarter. Other Income soared 69% YOY at Rs. 11920 Mn against Rs. 7070 Mn same period previous year. Controlled cost structure also led to high EBDITA & Net Profit Margins which stood at 31.68% & 22.92% improving by 79 & 54 basis points YOY respectively in the current quarter. All revenue segments exhibited positive growth with Manufacturing & BFSI leading the pack at 14% & 8% YOY respectively. Digital engagements made up 16.8% of overall revenues in the current quarter with growth of 6.6% QOQ and 30.20% yearly in constant currency. Geography wise, MEA, Latin America & India performed well with YOY growth rates of 19.80%, 15.10% & 13.10% respectively in the current December quarter.

Amidst global uncertainty & slow growth, TCS has maintained its Numero Uno status exhibiting resilience by reporting robust numbers in a traditionally weak December quarter. With low attrition rate, Free Cash Flows at 111% of Net Profit, strong client addition throughout revenue bucket, stable margins, robust bottom-line and highly credible management, TCS is one of the most desirable IT stocks justifying its fundamentals. We recommend BUY for the stock with target price of Rs. 2580 for medium & long term.

Industry- Current Scenario

India is one of the most important players in Global IT industry which is about $ 130 bn. Our Information Technology industry has transformed India into one of the biggest sourcing markets in the world. Infosys, Tata Consultancy Services, Wipro & HCL Tech are the big four of the Indian IT industry. The mid-tier comprises of companies such as Persistent systems, Mindtree, Tech Mahindra to name a few. Indian IT industry employs about 10-12 million and continues to forge ahead with its cost competitiveness due to inherent advantages such as skilled labor & strong educational system etc. The IT software & hardware sector attracted cumulative Foreign Direct Investment inflows of about $ 21.02 billion over the last 15 years. The industry is facing headwinds as global IT spend has reduced over the last few quarters and BREXIT has made matters worse losing clients as the economic restructuring has started in Europe. As the Indian IT sector depends on international markets like USA, Europe, UK etc, any global mood swing is able to upset earnings growth of the Indian IT companies which is an inherent risk in this export oriented industry.


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About Suhani Adilabadkar

Suhani Adilabadkar is a Research Analyst registered with SEBI ((INH200003240)) She has done PGDBA (Finance), MS (Finance) and a Fellowship from Insurance Institute of India. She maintains a blog where she publishes research reports across industries - oasisfundamentals.blogspot.in.


For more information please write in to [email protected]


Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.




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