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  • Company update: TCS — Reduce — TP Rs.1,790

    Publish date: July 11, 2018

    An excellent beginning

    Tata Consultancy Services (TCS) announced a healthy revenue growth of 4.1% due to strong performances of its verticals and announcement of five large deals in the last few months.


    Key Highlights

    • TCS has signed five deals worth US$8.8 billion. They have signed with Marks and Spencer as principal technology partner. With Transamerica, they have a US$2 billion-plus contract. They have forged a 15-year deal with Scottish Widows and a 10-year deal with M&G Prudential. They have also extended outsourcing contract with AC Nielsen worth US$2.3 billion.
    • The BFSI sector also aided the company’s growth, contributing 31% of the revenues. The US banking segment was one of the surprise performers, reinforcing the management’s view that the reports of insourcing have been exaggerated.
    • Digital revenues has grown by 9.1% qoq and 44.8% yoy. This segment now contributes 25% of the company’s revenues. The company is also well-positioned to get a large chunk of the market, with some analysts of the view that it would get more contracts than most offshore-heritage vendors.
    • The company’s EBIT margins have declined due to wage upgrade and rupee depreciation.
    • In their efforts to combat automation, the company has undertaken large-scale reskilling of their employees. Over 500,000 employees were trained on either key technologies or agile.

    Valuation & outlook

    Despite the company’s impressive performance and high share market growth of 34%, we feel the stocks are overvalued. With its stock valued at 21-times the FY2020E, the company will need US$2.1 billion of revenue addition, followed by CAGR revenue growth of 11% for the next seven to eight years to justify its current pricing.

    You can click on ‘full report’ to get a detailed analysis.


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