TCS shares firm after Q4 results as optimistic guidance helps; Angel Broking says ‘buy’

Tata Consultancy Services shares were trading firm amid sluggish key markets after India’s largest information technology services company’s guidance for the current fiscal 2017-18 expressed optimism for the year ahead, with the company aiming for an ambitious operating margin of 26-28%.

TCS shares were trading up 0.53% at Rs 2,321 on BSE, after rising to the day’s high of Rs 2,348.45. The benchmark BSE Sensex was down 0.24% at 29249.6 points, while the broader NSE Nifty was down 0.21% at 9,086.4 points.

Earlier yesterday, Tata Consultancy Services said its fiscal fourth quarter net profit fell 2.5% on-quarter to Rs 6,608 crore from Rs 6,778 crore in the previous quarter, broadly in line with expectations. But the company disappointed on operating margin front, with the fourth quarter EBIT margin reported at 25.73% in the quarter ending March 31, falling from 26% in the quarter ending December 31.

However, TCS said it continues to be optimistic on achieving an operating margin of 26-28% in the new fiscal year 2017-18, riding on recovery in its largest business segment. “We continue to see strong traction in BFSI (Banking, Financial Services, Insurance), and expect it to bounce back strongly, as we go forward into the next quarter,” TCS CEO Rajesh Gopinathan said.

Analysts too, seemed to be upbeat about the performance and guidance. Sarabjit Kour Nangra, VP Research – IT, Angel Broking, said in a note that the research and brokerage firm maintains ‘buy’ rating on the stock with a target price of Rs 2,700, implying more than 16% upside from the current price.

Investment and stock advisor Sandip Sabharwal also said that TCS has given a decent outlook on growth as expected.

TCS’ optimism is in contrast to its next biggest rival Infosys, which earlier last week offered a bleak outlook for the year ahead, guiding for an EBIT margin at 23%-25% for the current financial year 2017-18.

“We are quite positive about BFSI. We are seeing continuing momentum in BFSI. Insurance continues to do well. There is a lot of pipeline of small projects. So the deal momentum is fairly high, but the project sizes are smaller and therefore some amount of that is translating into volatility in terms of QoQ numbers. Our customers are positive about the future, and have very strong investment agenda,” Gopinathan added.

TCS’ BFSI revenue fell 0.4% in the Jan-Mar quarter, which Gopinathan said, was due to the cyclical nature of this segment. “BFSI is moe a cyclical or a period to period change,” he said.

However, the company expects its another business vertical – retail – to continue to be under pressure. “Retail is facing structural challenges in the industry,” Gopinathan said, adding, “Financial stress is building up on the (retail) industry.”