Accumulate TCS; target of Rs 2300: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on TCS

TCS delivered a steady performance for 2QFY19 with a modest beat on constant currency revenues and steady performance on EBIT margins. However, lower other income led to PAT miss our estimates by 2% for the quarter. Revenues came at USD5215mn for 2QFY19 up 3.2% QoQ and 10% YoY and above our estimates (PLe: USD5162mn). Constant currency revenue growth for the quarter stood at 3.7% marginally above our estimates (Ple: 3.5%). EBIT margin for the quarter came at 26.5% up 150 bps QoQ and in line with our estimates (PLe: 26.6%). Operational efficiencies (+30bps), INR depreciation (+120bps) aided in margin expansion for the quarter. Core operational margin expansion (ex-INR depreciation) was only 30bps QoQ and we believe that TCS recent deal wins which have a large onsite re-bading could have limited sequential core margin expansion .PAT for the quarter came at Rs79.2bn which is 2% below our estimates (PLe: Rs80.6bn) owing to lower other income.

Outlook

While rupee depreciation could aid margins in medium term, we believe TCS might have to gradually pass on the benefits to clients. We model EBIT margins at 26.6/26.4/25.6% for FY19/FY20E/FY21E (vs 24.8% in FY18). Our EPS estimates are upgraded modestly by 1.5/1% for FY19/FY20E to Rs85/96.5/sh. Our FY21E EPS estimates is retained at Rs105/sh. TCS trades at 20.7x FY20E EPS and 19.8x Sep20E EPS. Retain TP at Rs2300/sh (23x Sep20E EPS) Retain Accumulate.

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