TCS likely to retain momentum in H2, show sustainable growth

ET Intelligence Group: The second quarter performance of Tata Consultancy Services (TCS) shows that the country’s largest software exporter is on a solid footing. For the first six months of the current fiscal, the company delivered a double- digit topline growth in dollar terms for the first time in four years. And, this was without sacrificing operating profitability.

Other performance parameters such as client addition, share of revenue from the digital platform, employee attrition and cash generation from operations were equally stellar. This makes TCS among the most desirable top-tier IT stocks.

The company’s revenue grew by 3.2 per cent sequentially to $5,215 million in the September 2018 quarter, in line with the ET Intelligence Group’s estimate of $5,203 million. With this, the company has reported $10,266 million of revenue in the first half of FY19, reflecting a 10 per cent year-on-year growth. The last time it had reported a double-digit growth in the first semester was in FY15 when the topline had grown by 17.2 per cent.

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The second half of a fiscal has historically been of slow growth for the Indian IT companies due to holiday season and IT budget revisions by clients. But, TCS is likely to retain the momentum considering the thrust on the fast growing digital platform and a spate of large client additions. Its digital revenue grew 60 per cent yearon-year in the September quarter — the sharpest in recent quarters. This catapulted its share in the total revenue to 28.1 per cent from 19.7 per cent in the year-ago quarter. The rising share of the fast-growing revenue segment augurs well for investors at a time when clients are shifting away from traditional IT services.

Employee attrition at 10.9 per cent in the September quarter was unchanged from the quarter ago. The net employee addition of 10,227 sequentially was also the highest in 12 quarters indicating a sustainable growth in the medium term.

The stock has lost 12 per cent since October 1, largely tracking the weakness in the broader market. At Thursday’s closing price of Rs 1,979.8 on the BSE, it was traded at a trailing P/E of 25.9.

Notwithstanding the short-term turbulence in the equity market, TCS looks well placed for a long-term sustainable growth.

Source: Economic Times