TCS stock falls over 2% as analysts point towards cautious optimism

Highlights: 

1. TCS stock was trading low at 2.3% to Rs 2,255.00 as against the previous close of Rs 2,308.65  in the morning trade on BSE

2. It posted a 4.2% rise in the net profit to Rs 6,608 crore for the fourth quarter(Q4) ended on March 31 this year 

A day after TCS reported a better than expected fourth quarter (Q4) results despite slow growth in its businesses from BFSI, Retail and Hitech verticals, the stock of the company fell down over 2% in the early morning trade on the BSE.

The stock of the company was trading low at 2.3% to Rs 2,255.00 as against the previous close of Rs 2,308.65 in the morning trade on the exchange.

TCS on Wednesday posted a 4.2% rise in the consolidated net profit to Rs 6,608 crore for the fourth quarter(Q4) ended on March 31 this year. Its consolidated net profit was Rs 6,340 crore in the fourth quarter (Q4) of previous fiscal.

Its total revenue for the quarter grew by 4.2% to Rs 29,642 crore as against Rs 28,449 crore in the corresponding quarter of last fiscal.

According to PTI news report,TCS newly-inducted CEO and MD Rajesh Gopinathan termed the numbers as a "fairly satisfying in a challenging operating environment" which included political turbulence with protectionist tendencies in its key market and also currency volatilities where the rupee is appreciating.

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"We see fiscal 2018 as incrementally positive and are quite confident about the demand outlook that we see. There are a few verticals that have some lingering pressures, primarily coming  from the retail segment," Gopinathan, who took over only in February, said.

"The fourth quarter was marked by skewed growth across services and geographies, and visible challenges in the core geo and core verticals (BFSI, Retail). Additionally, the margin outlook (26-28% EBIT %) also comes with its downside risks (largely currency-related). Structural headwinds (including a shorter contract duration) in TCS’ BFSI and Retail  & CPG verticals (53% of revenue) are reflecting in its underperformance versus INFY, which also has higher non-linearity," HDFC Securities said in its report on Wednesday. 

Echoing similar views, Motilal Oswal Securities said," The fourth quarter (Q4) margin contracted 40bp QoQ to 25.7%, in line with our estimate. While TCS continues to target 26-28% EBIT margin, we believe offsets to recent currency movements will only come gradually, driving our assumption of 50bp YoY contraction in FY18 EBIT margin to 25.2%. 4QFY17 PAT declined 2.5% QoQ to Rs 66 billion (est. of Rs 62 billion) due to a lower forex impact." 

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"BFSI, Retail and Hitech were the key drags in FY17, of which TCS expects to see a recovery in BFSI and Hi-Tech next year. The stronger verticals will likely see continued traction, although the outlook is more of cautious optimism in Communications and Manufacturing," it further added. 

HDFC Securities has projected a secular growth for the company going forward.

"While BFSI is expected to improve slightly on improving deal pipeline for TCS going ahead, we remain circumspect of secular growth. Any meaningful acceleration is expected to be challenged by a continuation of volatility in LatAm/India business, and softness in the Legacy services (82% of revenue)," the research firm said.

"Our estimates remain nearly unchanged with FY18/19E EPS at Rs137/148. We expect US dollar revenue/EPS CAGR of 8.4/5.5%," HDFC Securities said. 

At 10:33 hours, the stock of TCS was trading down 0.37% or Rs 8.65 at Rs 2300 on the BSE.

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