Tata Consultancy Services Limited: Softer 1Q, Company still eyeing for double-digit sales growth in FY20

Dated: 10th July 2019

Tata Consultancy Services Limited: Softer 1Q, Company still eyeing for double-digit sales growth in FY20

1QFY20 Results
• TCS revenues in Rs terms reported 9% YoY growth to Rs 3,81,720 mn and to Rs 5,484 mn in $ terms. BFSI grew 11% YoY and Digital revenue reported strong growth of 44% YoY.
• Reported EBIT grew 7% YoY to Rs 92,200 mn. EBIT margins declined by 80 bps YoY to 24.2% due to higher depreciation and other expenses. 
• Reported PAT grew 11% YoY to Rs 81,530 mn.

Management Commentary
• TCS remains confident about medium-to-long term demand.
• Double-digit revenue growth in FY20 will depend on how 2Q pans out. 
• From now on, the focus will remain on maintaining margins. That will remain priority rather than margin expansion.
• Volatility in currency shall remain a factor to keep track of. 
• Sub-contracting costs have been on an upward trajectory for some time. This is a reflection of TCS’ decision to participate aggressively and capturing Digital demand, despite the supply situation.
• Issued joining letters to 30k+ in 1Q. 40% have on-boarded in 1Q and the remainder in 2Q.

Consensus Estimate (Source: www.marketscreener.com) 
• The stock price is Rs 2,105/- as of close price of 10th July 2019 and trades at 23x / 21x the consensus EPS for FY 20E / 21E EPS of Rs 90.1 / 101.0 respectively. 
• Consensus target price is Rs 2,165/- valued at 21x FY21E EPS of Rs 101.0.