TCS extends fall after Q2 earnings; down 8.5% in one week

Shares of Tata Consultancy Services (TCS) was down 3.5% to Rs 1,911 on the BSE in early morning trade in an otherwise firm market after the company reported a lower than expected revenue growth of 3.7% in constant currency (CC) terms in September quarter on the sequential basis. The Street was estimating revenue growth of 4% in CC terms for the quarter.

The stock TCS has fallen 8.5%, thus far in the current week, as compared to 0.36% rise in the S&P BSE Sensex. Since October 1, 2018, it was down 15% against 5.5% decline in the benchmark index.

USD revenue growth at 3.2% was, however, above estimates led by lower than expected cross currency headwind of 50bps.

In the quarter, the second one for this financial year, the Mumbai-headquartered company reported a 7.6% rise in consolidated net profit at Rs 79 billion over the previous quarter. Revenues in reported currency grew 3.2% to Rs 368.5 billion. In CC terms, it rose 11.5% from a year before and 3.7% from the June quarter.

“Overall, H1FY19 has been strong for TCS and company is guiding for double-digit CC revenue growth in FY19. The company will outshine peer group in FY19 with CC revenue growth of around 11% while most of the peer group will grow at mid-single digit. Further sharp rupee depreciation will also help TCS report YoY EBIT margin improvement,” analysts Antique Stock Broking said in a result review.

The brokerage firm retains BUY with target price of Rs 2,330 (Based on 22x FY21e EPS of Rs 106). The stock is trading at 20.7x FY20e EPS, which though expensive is justified against sustained revenue momentum and margin improvement, it added.

At 09:38 am; TCS was trading 2% lower at Rs 1,939, as compared to 1.57% rise in the S&P BSE Sensex. A combined 2.43 million equity shares changed hands on the counter on the BSE and NSE so far.

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