Axis Securities's research report on TCSTCS reported in-line revenue in Q4FY16 but margin was lower than expected due to higher equipment and software costs. Digital revenue (~16% share) continues to grow impressively (~15%QoQ). Key headwinds (Diligenta, Insurance, Japan, and Latin America) easing off. Headwinds receding, but accelerated digital investments lead to 26-28% margin: Management shared Digital, cost efficiencies and simplification to be key growth drivers. TCS will continue to invest in Digital initiatives (training, IP etc) to tap accelerated spends by clients. Its Digital Products and Platforms are gaining traction. FY16 saw ~120Kemployees(~1/3rd of totalemployee base) trained in digital technologies. Given the high digital investments, EBIT margin guidance (26-28%) has been maintained despite softening of above headwinds. We expect FY17E/FY18E USD revenue growth of 11%/12%, but lower our margin assumptions by ~50 bps each to reflect accelerated digital investments. Thus, our revised EPS stands at Rs 133/Rs 150for FY17E/FY18E (reducedby ~3%/2%). Given limited upside from CMP ofRs 2,522, we maintain HOLD with TP of Rs 2,546 (17x FY18E EPS). The stock trades at 19x FY17E and 17x FY18E EPS. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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