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    Many headwinds ahead for TCS stock

    Synopsis

    Growth in the dollar-denominated revenue was below expectations.

    TCS-5
    What looks worrisome is the sluggishness in the addition at the top-end of the client pyramid.
    ET Intelligence Group: After a strong performance in the fourth quarter of FY19, Tata Consultancy Services (TCS) has begun its journey in the current fiscal on a slow pitch. The company recorded sequentially lower new order bookings in the June quarter following stagnation in the number of clients above the $50-million billing category. Growth in the dollar-denominated revenue, both in reported and constant currency terms, was below expectations. The TCS stock, which trades at a higher valuation among the country’s top tier software exporters, may reel under pressure in the medium term, considering the slower business momentum, currency headwinds, and also the new norms on public shareholding in listed companies. Revenue grew 1.6 per cent sequentially to $5,485 million in the June 2019 quarter on slower momentum in the banking and finance, manufacturing and retail verticals. Operating margin (EBIT margin) fell by 90 basis points to 24.2 per cent on unfavourable cross-currency movement and wage increase.

    What looks worrisome is the sluggishness in the addition at the top-end of the client pyramid.

    Since the September 2018 quarter, when the company had reported four deal wins in the $100-million-and-above category, the number of clients has not budged much.

    It was stagnant at 44 in this category during the period. In the $50-million-and-above slab, TCS reported 100 clients in the June 2019 quarter compared with 98 in the September 2018 quarter.

    While the total size of deal wins has grown by more than 20 per cent year-on-year, it has slowed down sequentially. The company reported $5.7-billion worth of new deals in the June 2019 quarter compared with over $6.2-billion in the previous quarter. At a press conference after declaring the results, the company management attributed the slowness to cyclical factors and a larger base for comparison.
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    For Investors, it would be crucial to wait for the results of other top peers to ascertain whether the slowdown is company specific, or sector-wide. At Tuesday’s closing price of Rs 2,131.5, the stock traded at a trailing price-earnings ratio of nearly 25, making it the costliest stock among its peers. It may show weakness given the sluggish business momentum and a possible offloading of shares by the promoter group to comply with the regulatory requirement. Tata Sons, the promoters, holds over 72 per cent stake in the company, which should fall to 65 per cent according to the proposal in the latest Union budget.
    TCS snip 3




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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