Accumulate TCS; target of Rs 2620: Emkay

Brokerage house Emkay Global Financial Services is bullish on Tata Consultancy Services (TCS) and has recommended accumulate rating on the stock with a target price of Rs 2620 in its research report dated July 09, 2015.

July 10, 2015 / 15:53 IST

26 Aug, 2025 12:21

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Emkay's research report on Tata Consultancy Services (TCS)

TCS delivered a 3.5% QoQ US$ revenue growth in June’15 quarter (V/s Emkay est: 4.2% QoQ), however did well on margins with EBIT margins at 26.3% (Emkay est: 26%). Net profits beat aided by higher other income

June’15 quarter marks the 4th quarter in a row when TCS missed street/investor expectations with TCS blaming the miss on challenges in Latin America, Japan and segments like Energy. While there are some chinks appearing in TCS’s armour after the well rounded performance through several years, we believe that they are largely on account of the transitioning demand environment for the offshore IT Services space as they brace up for the ‘increasingly Digital’ demand

TCS in our view is executing relatively better to competition and thereby driving our positive stance. While TCS will correct in the near term, we believe TCS’s premium valuation multiples will hold. We cut valuation multiples one notch to 19x (V/s 20x earlier) and maintain ACCUMULATE, TP Rs 2,620 (v/s Rs 2,730 earlier)

"We moderate growth expectations (build in 9.8/13.3% US$ revenue growth V/s 11.4 /13.7% earlier for FY16/17) and EPS estimates see modest tweaks to Rs 118/134(V/s Rs 117/136 earlier) largely on account of Q1 net profit beat. We also introduce FY18E EPS at Rs 151. Given the moderation in revenue growth, we cut our target P/E multiple to 19x P/E (V/s 20x earlier) thereby driving a cut in TP to Rs 2,620. We continue to believe that TCS’s relative premium to peers will hold as we expect TCS’s positioning as a strategic outsourcing vendor to help it handle the transitioning demand environment for offshore IT Services players. While TCS will correct in trade in the near term, TCS along with HCL Tech are our relatively preferred picks in the Tier I space", says Emkay Global Financial Services research report.