TCS hits new high as Q1 profit beats Street estimate; stock ends 5% higher

Shares of Tata Consultancy Services (TCS) surged 6% in intra-day deals to Rs 1,990 per share, also their new high on the BSE in noon trade after the country’s biggest software services exporter posted a better-than-expected rise of about 23.5% year on year (YoY) and 6.3% quarter on quarter (QoQ) in first-quarter (Q1) net profit, helped by strong growth in its banking, financial services and insurance division (BFSI). The stock, however, ended a tad lower at Rs 1,970 levels - up 5.06% over its revious close.

TCS has recorded a consolidated net profit of Rs 73.40 billion in April-June 2018 (Q1FY19) versus a profit of Rs 59.45 billion in the same quarter last year. While the revenues at the reported currency grew 15.8% YoY and 6.8% QoQ to Rs 342.61 billion, in constant currency (CC) terms, it rose by 9.3% year-on-year (YoY) and 4.1% sequentially.

Analysts on an average had expected profit of Rs 69.67 billion on revenue of Rs 341.69 billion for the quarter.

“TCS Q1FY19 CC revenue growth at 4.1% QoQ is a meaningful beat to estimates and is highest in several quarters. Revenue recovery has gathered further momentum with a definite growth revival in BFSI and retail verticals. Slowdown in these two verticals had adversely impacted FY18 growth and with the recovery double digit constant currency revenue growth is almost a certainty,” Antique Stock Broking said in a result review.

Overall, FY19 has started on a strong note for TCS. Company will outshine peer group in FY19 with CC revenue growth of ~12% while most of the peer group will grow at mid-single digit. TCS will also report YoY EBIT margin improvement and company has maintained aspirations to achieve 26%-28% EBIT margin range. Robust deal signings in 1QFY19 is after a very strong order booking in 4QFY18, the brokerage firm said with ‘buy’ rating on the stock and 12 month target price of Rs 2,090.

“TCS reported an above-expected operating performance in Q1FY19 driven by a beat on both revenue and margins. With a growth recovery in BFSI services in North America, management is confident of sustaining growth momentum in the medium term,” analysts at BOB Capital Markets said in result review.

TCS is our only BUY-rated stock among tier-I players as we believe it is best placed to weather the structural challenges visible in legacy revenue portfolios. We have a Mar’19 target price of Rs 2,190 for the stock, revised from Rs 2,180 earlier as we tweak EPS estimates to factor in the Q1 performance, the brokerage said.

Thus far in the calendar year 2018, TCS has rallied 47% as compared to 6.5% rise in the S&P BSE Sensex.