Buy Tata Consultancy Services; target of Rs 3586: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Tata Consultancy Services

TCS reported strongest third quarter growth in 9 yrs. (+4.1% QoQ CC, +0.4% YoY CC). Accomplished positive CC growth Y-o-Y in 3Q itself, a quarter earlier than expected by the management  Read through for peers: TCS Management expects tech spend to strengthen in CY21 with strong multi-year technology transformation opportunity. There is upside to growth & margin estimates on account of faster revenue conversion of deals and continued strong demand for cloud & digital adoption. Market share gains, quick revenue gains from deals signed in earlier quarters and strong growth in adoption of digital transformation resulted in strongest third quarter growth in 9 yrs. TCS reported strong 4.1% QoQ CC & 5.1% $ terms way ahead than ours & consensus estimates of 3.0% QoQ CC. Revenue growth was broad-based led by Manufacturing (+7.1% QoQ CC), Life Sciences and Healthcare continued to grow at double digit YoY (+5.2% QoQ CC, +18.2% YoY CC). BFSI (+2 QoQ CC) and Retail (+3 QoQ CC) had good sequential growth in seasonally weak quarter.

Outlook

Management remains positive on UK (+4.5 QoQ CC) despite UK’s weak economic recovery and health crisis. We believe that strong revenue ramp up from recent large deal wins will drive strong sequential revenue growth for 4QFY21. Management expects tech spend to strengthen in CY21 with strong multi-year technology transformation opportunity. Cloud Adoption will continue to remain strong demand driver and can be characterized as the new ERP. Increased volume of M&A, divestiture & carve outs driving demand in end-to-end technology integration. Hiring for the quarter was highest ever in a single quarter. We have increased our EPS estimates by avg ~6% for FY22/23E led by increase of revenue estimates. We project revenue growth of 14.5%/11.5% $ terms for FY22/23E respectively. We continue to value TCS on 30X on FY23E earnings of INR120 to arrive at a changed TP of INR 3586 (earlier:3358).

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