Accumulate Tata Consultancy Services; target of Rs 3607: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Consultancy Services

TCS reported miss on both revenue and EBIT margin front. It reported revenue of USD 6,780 mn, +1.3% QoQ in USD (PLe: 2%, Cons: 1.5%) and 3.5% QoQ in CC terms (Ple: 4%, Cons: 3.6%). Revenue growth was led by Retail & CPG (4.5% QoQ USD) and Communication (2.9% QoQ USD) vertical. US continues to lead the growth (4.5% QoQ USD), while QoQ Europe has been soft for past four quarters. Deal TCV was healthy at 8.2$ Bn, 1% YoY, -27% QoQ. Management expects to maintain deal TCV within 7-9 bn USD range. Net addition was lower at ~14K vs average ~26K addition per quarter in FY22. Miss in margins was due to 150bps impact of wage increments, higher subcon and travel costs. LTM attrition inched up further to 19.7%, +230bps QoQ. Attrition is expected to taper down from Q3 onwards.

Outlook

We continue to value TCS on 28x FY24 EPS and arrive at TP of INR 3,607 (earlier Rs.3683). The company is currently trading at 28.8x/25.4x on FY23/24 EPS of 113.3/128.8 with revenue/EPS CAGR of 8.7%/10.9% over FY22-24E. Maintain ‘Accumulate’.