Tata Consultancy Services Q3 net up 10.9 pct, beats estimates

Last Updated: Thu, Jan 12, 2017 18:53 hrs
A private security guard stands at the exit gate of the headquarters of TCS in Mumbai

Mumbai: India's biggest software services exporter Tata Consultancy Services Ltd (TCS) said it would continue to focus on expanding its digital business after beating analyst estimates with a 10.9% rise in profit for the quarter to December.

The company's digital business grew 30% annually in the December quarter.

"Our investments in digital, our investments in building the right skills in people are positioning us to capture that segment extremely well," TCS Chief Executive Officer N Chandrasekaran said .

India's $150 billion showpiece information technology (IT) sector struggled through 2016 as Western clients slowed discretionary spending ahead of the US presidential election and Britain's surprise decision to leave the European Union.

A leading industry lobby group also cut the IT sector's growth forecast for the fiscal year ending March 2017.

But analysts expect 2017 to play out well for Indian software service exports as banking and financial services in the United States begin to loosen purse strings for tech spending.

A pickup in US banking and a recovery in demand in Britain and the EU as fears of an economic slowdown following Brexit ease are likely to boost IT spends, UBS said in a research note ahead of TCS results.

Indian IT companies are also expected to speed up acquisitions in the United States, their biggest market, and recruit heavily from university campuses there as they try to beat a more protectionist visa regime expected under Donald Trump's administration.

TCS's net profit for the third quarter rose to Rs 67.78 billion ($995 million), from Rs 61.10 billion a year ago and ahead of analysts' estimates of Rs 65.11 billion.

Revenue for the quarter rose 8.7 percent to Rs 297.35 billion.

Meanwhile, media reports said TCS's CEO Chandrasekaran will be appointed the new chairman of Tata Sons after Cyrus Mistry was ousted by the board in October. Rajesh Gopinathan, TCS's chief financial officer will replace Chandrasekaran as CEO of TCS, media reports said.

Tata Sons declined to comment.

Emkay Research on TCS post Q3 results:

TCS (HOLD, Current Market Price Rs 2343, Target Price Rs 2350) December 2016 Quarter Results: Inline operational performance supported by higher Equipment sales, net profit beat aided by forex gains

TCS's December 2016 quarter results are broadly in line with our expectations with a 0.3% QoQ US$ revenues growth (+2% QoQ in constant terms V/s 1.6% QoQ growth expectations) however is supported by significant contribution from Equipment Sales (+US$ 65 mn, +). International revenues have declined by 0.2% QoQ in December 2016 quarter, +150 bps QoQ). EBIT margins continue to be at the lower end of the company's indicated range of 26-28% range and are in line with our estimates. Financial Services (+2.1% QoQ in c.c terms in December 2016 quarter v/s 1.2% QoQ c.c growth in September 2016 quarter ) has seen marginal improvement and strengthens our thesis of some pick up in revenue growth across the sector as some of the recent cyclical headwinds recede and support a normalization in growth across the sector. Our FY17/18E EPS of Rs 132/140 might see marginal increases led by Q3 beat (supported by forex gains). We see a flat to slight modestly positive reaction to these results. We currently have a HOLD rating on TCS with a Target Price of Rs 2350.

($1 = 68.0950 Indian rupees)

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