TCS reported a mixed set of numbers for Q3FY19 with a miss on the margin front. The company's INR revenue in the quarter ended December 2018 grew 1.3% qoq to Rs37,338cr, marginally lower than the median consensus estimates of Rs37,904cr. Constant currency (cc) revenue grew 1.8% qoq and USD grew 0.7% qoq and came in at US$5,250mn. EBIT stood at Rs9,564cr, down 2.1% qoq against the median consensus estimate of Rs10,083cr. EBIT margin, too, contracted 90bps qoq to 25.6%. TCS' profit after tax (PAT) grew 2.6% qoq to Rs8,105cr against the median consensus estimates of Rs8,156cr.
BFSI (+8.6% yoy cc) and retail & CPG (10.6% yoy cc) grew slightly below the company average of 12.1% yoy cc.
It energy & utilities vertical led revenue growth and was up 18.1% yoy cc.
Communication & media was up 10.8% yoy cc; life sciences & healthcare was up 15.7% yoy cc; regional markets & others continued its strong run (up 22.6% yoy cc); manufacturing was significantly below (up 6.7% yoy cc) the overall company average.
Among geographies, North America was up 8.2% yoy cc, while the UK and continental Europe were up 25.1% yoy cc and 17.6% yoy cc, respectively, with UK leading growth.
Digital now accounts for 30.1% of the overall revenues, up from 28.1% in Q2FY19 and registering a growth of 52.7% yoy.
One new client was added in the US$100mn+ band taking the total up to 45.
Overall attrition stood at 11.2%.
At current market price, the stock trades at ~18x its FY21E EPS. The margins were a miss and we understand that higher cost of delivery is the likely reason. However, considering the high base of revenue and the seasonally weak quarter, the results can be categorized as mixed with a slight inclination towards in-line. We believe that TCS is ahead of the curve in terms of capabilities vs. its large peers and will continue to outgrow them. Given the recent correction from its peak, we believe that the stock may correct marginally and such opportunities should be used to add to current positions.
Tata Consultancy Services (TCS) Ltd share price ended at Rs1,888.15, up 0.35 points, or 0.02%, from its previous close of Rs1,887.80 on the BSE. The scrip opened at Rs1,904 and has touched a high and low of Rs1,906.80 and Rs1,874.10, respectively. A total of 32,11,010 (NSE+BSE) shares were traded on the counter. The stock traded above its 100-DMA.
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