The IT major reported a profit of ₹8,040 crore for the September quarter compared with an estimated ₹8,300 crore by 22 Bloomberg analysts. TCS reported a revenue growth of 0.6% quarter-on-quarter in dollar terms to $5,517 million. This is the weakest second-quarter growth (seasonally the strongest quarter) since the July-September quarter of FY17. Earnings before interest and taxes (EBIT) margin was also lower than expectation by 114 basis points on the back of higher employee costs, leading to a 6% miss on EBIT.
At 10am, the stock was trading at ₹1,958.95 on the BSE, down 2.27% from its previous close while the Sensex rose 1.2% to 38,323.78 points.
Here are the brokerage views of the results:
1. See limited scope for revenue acceleration in the second half of fiscal year 2020, given the incremental weakness in retail and regional markets, and continued softness in BFSI (combined 70% of revenues), though some improvement in telecom and manufacturing is visible;
2. Forecast 8% year-on-year growth in FY20F in constant currency terms (vs 8.8% previously) and see risks to the Street’s near double-digit growth estimates.
3. On EBIT margins, the brokerage firm sees near-term levers from utilization as hiring momentum slows and rationalization of SGA, over the medium term margins are likely to be under pressure on rising onsite costs, pricing pressure in legacy and higher subcontractor expenses
4. Cut revenues by 1% and EBIT margins by 20-40 basis points over FY20-22E
5. Rating remains at neutral and lower target price by 3% to ₹1950 a share.
1. Continued weakness in retail, parts of BFSI, and many regional markets affected growth
2. Retail weakness also led to deceleration in digital growth in the second quarter
3. With weak earnings it is now almost confirmed that the company will grow in single digits in FY20E — we cut our year-on-year constant currency growth estimate to 8.4%; also cut EBIT margin to 24.3% to reflect weak H1. This leads to 4-6% reduction in our EPS estimates over FY20-22E
4. Maintains buy rating but reduces target price to ₹2,300 from ₹2,500 earlier.
1. We see earnings as a confirmation for the moderation in revenue growth across the sector that we have been highlighting in our notes due to global macro weakness which is also leading to incremental offshore shift, reversing the multi-year trends toward higher local delivery
2. Weak financial services and retail reflect macro weakness and possible slowdown in decision making
3. Rupee depreciation and improvement in macros remain key risks
4. The brokerage firm continues to be under weight on the stock and cut its target price to ₹1980 a share from ₹2004 earlier.
1. The slower growth was due to continued softness in BFSI and unexpected weakness in the retail vertical.
2. With limited margin levers in the light of weak growth in H2 other than INR depreciation, we think margin recovery will be challenging
3. We believe with the new buyback norms in place, capital return from here on will likely be more in the form of dividends.
4. We retain out sell rating with a target price of ₹1593 a share
1. The revenue miss stemmed from continued weakness in the BFSI and retail verticals, while a double whammy from cost-revenue mismatch and the absence of currency tailwinds cramped margins.
2. This virtually rules out the possibility of double-digit growth for FY20 and marks a deepening revenue slowdown
3. We trim FY21/ FY22 EPS by 5-6%, lower our target P/E to 22.5x (vs. 23x)
4. We like the company’s strong structural backbone but expect near-term stock weakness on growth concerns
5. We cut target price to ₹2,230 from ₹2,360 earlier.