BL Research Bureau

TCS reported September quarter revenue of ₹ 46,867 crore and EPS of ₹ 26, which were approximately 1 per cent below consensus expectations (Bloomberg). While the miss may not be significant, given its premium valuation versus its historical levels as also the valuation of global peer Accenture, it is a dampener. Another factor to note is that Accenture beat expectations in its recently reported August quarter results. At the time of writing this, the TCS stock was down by 6 per cent to ₹ 3,696 in trading on Monday. Results were reported after market close on Friday.

Operating metrics fine

Constant currency (cc) revenue growth was up 15 per cent year on year (Y-o-Y) (Accenture reported 21 per cent growth) and operating margin was at 25.6 per cent (marginally below expectations). The company saw broad based growth across verticals and geographies. The largest vertical – BFSI - which accounts for 32 per cent of revenues saw robust growth with cc revenue growth of 17 per cent Y-o-Y and crossed $2bn in quarterly run rate. Good cash conversion continues with net cash from operations at 103 per cent of net income.

Management commentary while not giving specific targets/objectives, was generally positive highlighting long term opportunities in a strong demand environment.

Valuation at a premium

We had recommended a book profit on TCS stock in our Portfolio edition dated January 24 purely on valuation grounds and maintain our recommendation. While company’s execution remains best in class, these are more than well factored into the stock price. TCS trades at a PE of 35 times its next 1 year EPS – a 52 per cent premium to its last 5 year average multiple. It is also at good 10 per cent premium to Accenture which trades at 31.5 times which appears completely unwarranted. Historically Accenture has traded at premium to TCS given its industry leading position globally.

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