TCS (ACCUMULATE, CMP Rs 2,546,TP Rs 2,840) Sep’17 Quarter Results:
Results ahead of estimates, OPM back in the guided band despite weak INR; maintain Top pick in Tier I segment
TCS’ results were ahead of our estimates, with strong volume growth of 3.2% qoq (part negated by lower realisations) in the quarter. Revenues in constant currency terms grew by 1.7% qoq, driven by sustained strong traction in the Digital service offering that grew by 5.9% sequentially accounting for about 19.7% of revenues. Legacy business grew about 2.1% qoq in US$ terms and the commentary in these service lines would be crucial to determine overall future prospects. Operating profits grew by 10.8% qoq at it saw gains in OPM of about 170bps qoq at 25.1% normalization of wage/visa cost and lower sub-contracting cost in the quarter. Reported PAT grew by 8.4% qoq at Rs64.5bn on strong operating performance and stable other income performance qoq at Rs8.1bn (Rs 9.3bn in Q1). EPS growth was 10.8% qoq as it gained on buyback led accretion. We believe that company has delivered strong growth and profitability performance despite sustained pricing pressure and weak INR realizations. We have built in revenue/earnings CAGR of about 9.3%/9.5% over FY18-20e and may revisit our estimates post the earnings call (today at 7pm - 3938 1011).
Sep’17 quarter results highlights:
- Revenues at US$ 4.7, bn (+ 3.2% qoq, 8.3%YoY) in line with our estimates (Emkay est: 3.3% qoq). Constant currency revenue growth was 1.7% qoq (V/s Emkay estimate of 2.1% qoq). INR revenues grew by 3.2% qoq better than our estimates as revenues for the quarter were realized at USD/INR of 64.4 as against our expectations of 64.3.
- EBIT margins improved by 170bps qoq at 25.1% well ahead of our estimates (V/s Emkay expectations of 24.0%). Profitability beat was driven by strong cost management both on operational factors (sub-contracting) and SG&A expenses (savings on visa/travel and other G&A). The OPM beat is a positive surprise despite weak pricing in the quarter.
- Reported Profits at Rs 6.45bn (up 8.4% qoq, -2.1% yoy) well ahead of Emkay estimates of Rs 60.7bn) on strong operating performance and better than expected other income.
- Interim dividend of Rs7 per share announced (record date: 26th Oct).
- Growth is broad based across geographies and verticals (barring Retail/CPG).
|
Operating metrics performance at a glance:
Performance
Growth by Verticals (all in constant currency terms)
Growth by Geographies (all in constant currency terms)
Sep’17 quarter result summary
|