TCS Q3 review: Earnings in line, but supply constraint a factor to watch out for; buy on dips

We expect modest return from the stock in the medium term and recommend accumulation only on correction.



Tata Consultancy Services (TCS) delivered in-line performance in Q3FY19. Expect modest 

returns going forward as global macro concerns, supply constraints in delivery and heady

valuation partially masks the strong demand environment.

Key Positives

Double-digit growth (12.1 percent YoY) in Constant Currency. Digital continues to impress with a share of 30.1 percent and reporting strong YoY growth of 52.7 percent.
Growth is seen across geographies led by UK, Continental Europe and Asia Pacific. The key market of North America, with a share of over 51 percent, has also shown a good 8.2 percent growth YoY.
Traction in key verticals with BFSI growth improving to 8.6 percent from 6.1 percent in the September quarter is aided by the North American market and insurance vertical. Life sciences, energy and utilities and regional markets continued to impress.
Strong deal win momentum with value of deal wins at $5.9 billion — 20 percent growth over the previous quarter and positive commentary on deal pipeline and demand environment.
The TCS management stressed on their strong expertise in areas of digital, IoT (internet of things), AI (artificial intelligence) and intelligent automation as drivers for deal wins and hinted at a shift in preference for outsourcing by larger companies, contrary to fears of insourcing (where companies prefer to do the job in house) on the rise.

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