TCS weathers headwinds for constructive growth in FY 2018: Jefferies

Indian IT bellwether Tata Consultancy Services (TCS) indicated a constructive (revenue) outlook for fiscal 2017-18 (FY 2018) after weathering headwinds in fiscal 2016-17, said American investment bank Jefferies LLC on Wednesday.

"TCS gave a constructive outlook for FY 2018 after facing headwinds in FY 2017, as evident from robust net profit and revenue growth in its fourth quarter (January-March)," said the New York-based securities firm in a statement here.

Beating the market estimates, the global software major posted Rs 6,608 crore net profit for the quarter (Q4) of FY 2017, registering 4.2 per cent year-on-year (YoY) growth and 2.2 per cent quarter-on-quarter (QoQ) growth in rupee terms.

Revenue for the quarter also grew 4.2 per cent YoY to Rs 29,642 crore though flat (0.3 per cent) sequentially or QoQ.

Under the International Financial Reporting Standards (IFRS), net income grew 5.8 per cent YoY to $992 million and revenue also 5.8 per cent YoY to $4.45 billion.

"The Q4 numbers were inline, closing a challenging fiscal in the face of headwinds from its Business Process Services arm Diligentia in Britain for life and pension industry and LatAm (Latin America) and Japan markets," noted the statement.

Revival in banking, which contributes 40 per cent revenue and growth in digital business made the IT major upbeat about its outlook in FY 2018.

Unlike its peers Infosys, which reported lower operating margin for the quarter (Q4) and fiscal (FY 2017) under review, TCS maintained its Ebit (earnings before interest and tax) margin in 26-28 per cent band.

Terming the revised dividend policy to return excess free cash through regular dividends as a shift to yield from growth, Jefferies said the change would result in more predictable returns than the special dividend the IT major announces every two-three years.

The company's shareholders recently approved its February 17 special resolution through electronic voting system and physical ballot form to buy back 5.61 shares for Rs 16,000 crore at Rs 2,850 per share of Re 1 face value.

"After meeting internal cash requirements and maintaining a reasonable cash balance towards strategic investments, the company will soon return rest of the free cash thorough regular dividends," noted the statement.

For FY 2017, the company's net profit grew 8.6 per cent YoY to Rs 26,269 crore and revenue also grew 8.6 per cent to Rs 117,966 crore in rupee terms.

Under IFRS, net income in dollar terms grew 6.2 per cent YoY to $3.92 billion and revenue also grew 6.2 per cent YoY to $17.58 billion in FY 2017.

"A more constructive outlook for FY 2018, robust execution and leadership in digital among the Indian IT peers are key positives for the bellwether," added the statement.

--IANS

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