Being an election year, domestic revenues for Tata Consultancy Services are expected to decline in March quarter, thus impacting its overall growth, says SBI Cap Securities
Demand environment for Tata Consultancy Services (TCS) would remain as there is an improvement in discretionary spending. “Generally March is the strongest quarter for India business. However, being an election year, revenue from India is expected to decline quarter-on-quarter in Q4, impacting the overall growth,” says SBI Capital Securities in a note.
According to a research note, geographically, the US and UK are expected to grow close to the average of TCS, whereas Latin America would grow faster.
“For TCS, performance in March quarter is likely to be weaker than December quarter due to seasonal factors and softness in the India business, impacted by the general elections,” the report said.
SBI Cap Securities, in a research note, has lowered its estimates on TCS for Q4 to 2% in constant currency, down from its 3% estimates earlier. According to TCS management, closure and ramp-up of deals are on track. The company expects better FY15 compared with FY14.
In terms of profitability, TCS had maintained its long-term EBIT margin target of 27% and would look at reinvesting in domain capabilities, expanding its offerings and reach, and also being more aggressive in chasing deals, the research report said.
SBI Cap Securities, said, “Despite near-term revenue weakness, we believe TCS is best placed to capture any uptick in spending on the back of its diverse presence across verticals, markets and service lines. Over the last 1M/3M, TCS has corrected by 7%/2% and currently trades at 18.9x/17.0x F15e/F16e EPS. Considering its ability to retain and improve market share and recent stock price underperformance, the research analysts upgrade the rating to BUY from HOLD with a revised target price of Rs2,525 valuing company at 21x F16e earnings.”
The company’s financial summary is shown in table below:
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