Brokerages expect Tata Consultancy Services Ltd. to benefit further from the recovery in the core banking and financial services going forward.
Improving growth outlook from large deal wins, gains from improvement in digital revenues and potential recovery in the U.S. banking and financial services drives one percent upgrades to our FY19-20 revenue and EPS (earnings per share) estimates.CLSA Note
Rising participation in larger digital implementation projects, bottoming out of BFS insourcing and strong preferred relationships keep TCS best positioned to exploit growth recovery, it added.
TCS had indicated in a conference post the results that the stress in the segment is reducing. “Incrementally, we are now more confident about BFSI North America than we have been in the past,” Rajesh Gopinathan, chief executive officer of TCS, said in the conference.
TCS is very likely to clock double-digit growth in the current financial year, say brokerages HSBC and IDBI Capital.
“A good exit rate, strong deal wins, pick up in the digital vertical and management’s increased confidence on banking revival bodes well for double-digit growth in FY19 for TCS,” HSBC said in a note. The brokerage, however, goes on to state that the upside potential in the stock is limited due to the recent run-up.
However, not all seem to be bullish about impact of the recovery on TCS’ prospects. “Incremental improvements in BFS should be a key trigger for the stock. “While the company believes the situation in Retail has bottomed out, recovery in BFS doesn’t seem concrete yet,” Motilal Oswal said in a note, adding that 26 percent margin target on full year basis “looks a daunting one.”
Other brokerages’ views:
- Clarity on BFSI still a quarter away amid risks from insourcing at large U.S. banks.
- Expect earnings before interest margins to moderate by around 110 basis points to 23.7 percent levels by FY20F.
- Sluggishness in large segments, margin pressures and expensive valuations keep us cautious.
- Do not see downside to the stock despite high multiple due to sector tailwinds and high cash returns.
- Definite possibility of double-digit revenue growth with robust deal wins and green-shoots in BFSI.
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