TCS trades lower on profit booking post Q3 results

Tata Consultancy Services (TCS) was down nearly 2% at Rs 2,741 on the National Stock Exchange (NSE) on profit booking after the software bellwether reported Q3 results in line with the Street expectations.

At 09:26 am; the stock was trading 1% lower at Rs 2,756, after hitting high at Rs 2,805 on NSE in early morning trade. It closed at Rs 2,791 on Thursday. The company announced the Q3 results after market hours yesterday.

In past four weeks, TCS had outperformed the market by gaining 9% as compared to 3.8% rise in the Nifty 50 index till Thursday.

The third quarter net profit of TCS dipped 3.9% year-on-year (Y-o-Y) to Rs 65.45 billion, while its revenues grew 2.7% to Rs 317.7 billion. On a constant currency basis, the company posted a sequential growth of 1.3%, largely driven by volumes (up 1.6%), even as it continues to face pricing pressures. It added 94 customers in the December-ended period.

“Barring banking and retail vertical, other verticals have reported healthy y-o-y growth in FY18. Retail vertical has come back strongly with a 6.4% Q-o-Q growth after 3 quarters of decline. Digital business and the products business is also witnessing good traction and contributing to growth,” analysts at Antique Stock Broking said in Q3FY18 result review.

Banking continues to be the sole cause of concern and management though hopeful of recovery, lacks visibility on timeline of recovery. Within banking, management has highlighted large US based banks as the prime culprits. Lack of visibility on revival in banking vertical and rich valuations (FY18/19 PE of 20.8x/19X) restrict us from turning positive on the stock, add report with ‘Hold’ rating on the stock.

Analyst at IDBI Capital upgrades TCS to accumulate with target price of Rs 3,102 as the brokerage firm believes that momentum in digital solutions will enable the company to get back to double digit growth in FY19.

Digital solutions saw a massive 39.6% y-o-y and 13.9% Q-o-Q growth. TCS confirmed that it is seeing larger deals in digital solutions. Out of the 11 large deals secured in Q3FY18 at least 50% are business transformation deals, IDBI Capital said in result review.