TCS dips post Q4 results

At 11:27 am, the stock was down 1.8% to Rs 2,476 on the BSE as compared to 0.15% decline in the S&P BSE Sensex.

Tata Consultancy Services (TCS) had dipped over 2% to Rs 2,468 on the BSE after the company reported a lower-than-expected operating profit margin for the quarter ended March 2016 (Q4FY16).

TCS’ earnings before interest tax (EBIT) contracted by 54 basis points (bps) to 26.1% on quarter on quarter (QoQ), owing to currency volatility and a drop in realisation. Revenues and net profit grew 4% to Rs 28,449 crore and Rs 6,341 crore, respectively, over the previous year quarter.

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“Q4FY16 revenues were largely in line with estimates, while margins were below expectations. This quarter’s margins were impacted by investments in business most of them being in Digital. EBIT margins declined by 54bps QoQ to 26.1% against expectation of 26.9%, due to investments in business,” analyst at Prabhudas Lilladher said in a note.

Management has indicated that the headwinds faced by the business in FY16 – Dilligenta, Insurance, Latin America, Japan etc have either turned the corner or have bottomed out.

However, we don’t see any upside to our FY17/18 US$ revenue estimates while margins could see some downside. We retain our earnings estimates and downgrade the stock to Outperform as we see limited upside at our target price of Rs 2,620 based on 18x FY18 EPS, added the report.

According to analyst at Religare Institutional Research, overall, Q4FY16 was a soft quarter for TCS with a miss on margins. Besides, the quarter points to a continued decline in realisations (as also seen for Infosys), likely due to a mix shift and/or pricing pressure in traditional services.

We think valuations at around 17.5x FY18E are full due to limited levers for earnings upgrades amid moderating growth and premium margins, the brokerage house said in a results review.

At 11:27 am, the stock was down 1.8% to Rs 2,476 on the BSE as compared to 0.15% decline in the S&P BSE Sensex. A combined 1.91 million shares changed hands on the counter on the BSE and NSE.