TCS Q1FY18 review: Disappointment part of the transformation journey

TCS Q1FY18 review: Disappointment part of the transformation journey

For TCS shareholders, volume growth of 3.5 percent would be positive only in the number of terms in June. Management appeared positive while announcing the March figures, but that did not appear in the June results.

The giant suffers pain “transformation” forced by the rapid evolution of landscape technology. Investors should lower their expectations until new companies to offset the pressure on traditional services.

At the arrival of USD 4591 million in dollars of increase of 3.1% sequentially. Income growth in constant currency was 2%, while growth in the underlying volume was 3.5%.

The difference of 150 basis points was due to price erosion. Income growth of the rupee was flat at Rs Rs 29,584 due to the strong rupee.

The operating margin was a disappointment, falling sequentially 240 basis points to 23.4 percent. The Company granted 150 basis points to the revision of salaries and 80 basis points to the depreciation of the rupee.

Remember, two months later, management was confident to maintain a 26-28 percent margin after the figure had fallen slightly to 25.7 percent in the March quarter.

The other area that deserves attention is the anemic growth in the areas declared BFSI (Financial Services Banks and Insurance) retail and CPG, which represent almost 45% of sales.

While these two areas have been disappointing for some time, management must still look forward to its future. Management has indicated that, although a rebound in BFSI was observed this quarter, more offers must be fructified before they become constructive.

A new area called “regional markets and others” appeared in the report format that will capture the company’s volatile revenues (especially new geographies / smaller markets).

After robust hiring in the previous quarter, the same deceleration considerably during the current period.

The bottom line has been positive in terms of agreement with the company asserting discounts received eleven deals – seven from North America, two in Europe and one in Asia Pacific and the UK.

The big choice for long-term investors is the growing importance of digital technology in the business.

TCS has terminated reporting by verticals (such as development / application infrastructure, etc.) as of this quarter as more and more business is positioned to take advantage of opportunities in the digital space.

A new group called Business & Technology Service Group (BTS) was created, led by a high-performance company.

The three verticals of this group would be: Digital transformation services, consulting of cognitive and business operations and system integration. TCS begin declaring business in new vertical markets redefined in some sectors.

The proportion of digital revenues from 17.9% to 18.9% improved. It appears digital to improve its share of about 100 basis points every quarter (about 400 basis points per year).

Although the size of digital bids increased compared to the past, they are still not enough to offset the large profitability loss due to traditional services.

Despite the disappointment and slowdown gains (which is unlikely to exceed a single digit in the next two years), we believe that TCS is well underway on this technological transformation journey.

Given its size, the high-margin digital piece from a major contributor to revenue, however, takes time.

Given the growth prospects, it is unlikely that the 17.1X assessment projects earnings for the year 18 or even for long-term investors. Expect a big discount to become constructive.