Buy Tata Consultancy Services; target of Rs 3650: Sharekhan

Sharekhan's research report on Tata Consultancy Services

Revenue growth was flat q-o-q and rose 7% y-o-y in CC terms in line with our estimates led by Lifesciences, Healthcare Manufacturing verticals. EBIT margins dipped to 23.2%, down ~130 bps, missing our estimates by 40 bps largely due to wage hike. Company reported robust order book TCV of $10.2 billion with Book -to-bill ratio of 1.4x. Deal TCV was broad based with TCVs from North America at $5.2 billion, BFSI at $3.0 billion and Retail at 1.2 billion. The management highlighted that clients are reprioritising and causing softness in revenue, but the company is not witnessing any major cancellations or ramp downs. Projects with low ROI are being paused. Despite soft demand environment, we believe TCS is well placed to capture opportunities arising from vendor consolidation, transformational deals, cloud services and new technologies like generative AI.

Outlook

Hence, we maintain Buy rating on TCS with an unchanged PT of Rs. 3,650. At the CMP, the stock trades at 26.6x/24.7x FY24/25E Eps.