Buy Tata Consultancy Services; target of Rs 2312: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Consultancy Services

TCS posted a strong results beating consensus estimates on revenues & margins. Improved deal wins, stronger exit rate, broad based growth, robust pipeline & stable pricing environment will help TCS to deliver double digit growth in FY20E. Strong growth in major verticals (BFSI, Retail) & major geographies (US, Europe) gives us more confidence about TCS execution & pricing power. We reiterate TCS as our top pick in tier-1 IT sector since it's likely to gain more market share using its specific core strengths viz. lowest cost/attrition, large agile workforce, early investments in building digital capabilities & strong execution.

Outlook

TCS's valuation premium is justified given its solid & predictable earnings track record. We have raised our EPS estimates by 2.6%/2.9% of FY20E/21E to factor robust revenue growth & stable margin performance. Our revised TP stands at Rs.2312 (earlier: Rs.2265) valued at 22.5x Mar-21 multiple. Maintain Buy.