Firm-specific issues impact revenue growth for TCS, says IIFL

Although valuations have corrected in the past year, they are still rich at 17x FY17ii PER. INFO, TECHM and HCLT are top picks in large-cap IT.

TCS’ 3QFY16 revenue growth of 0.5% (cc, QoQ) was weaker than IIFL Institutional equities estimate of 1.3%. This is a material miss, says the brokerage. Poor growth in smaller geographies such as India, Japan, Middle East, and continued slowdown in Diligenta BPO impacted revenue, it added.


Following is an extract from the report:

• Ebitda margins declined 50bps QoQ and were in-line with our estimate. Loss of billing days due to Chennai floods was a significant headwind.
• While the headline revenue was a negative surprise; commentary on Diligenta, BFS vertical and pricing was positive. Management indicated instances of significant pricing pressure were limited to a few deals.
• We are cutting our FY17/18 EPS estimates by ~2% due to a modest cut in revenue growth. Although valuations have corrected in the past year, they are still rich at 17x FY17ii PER. INFO, TECHM and HCLT are our top picks in large-cap IT.