Buy Tata Consultancy Services; target of Rs 4221: 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 largely in-line revenues and margin in Q4. The strength in demand is reinforced by – 1) record high broad-based TCV ($11.3 Bn, 49% QoQ, +23% YoY) comprising of two large deals (7-10-year duration), 2) management commentary that deal TCV will continue trending upwards at ~$8+ bn (vs $6-7 Bn pre-covid) and 3) record headcount addition of ~35K, 6%QoQ, +21% YoY. Margins are expected to remain under pressure in the near term due to high manpower costs and return of travel and facility costs. We expect supply pressures to ease in H2FY23, as quarterly attrition cools off. Tech budgets remain priority despite high inflationary environment and we expect impact of inflation to be seen on tech spending with a lag in FY24. We remain structurally positive on TCS given its – 1) strong growth momentum on a high base, 2) best in class supply side metrics with industry leading margin profile and 3) strong client mining abilities further enhanced by client centric new org structure. We cut our EPS estimates by ~1.5%/0.8% for FY23/24 led by cut in margin estimates.

Outlook

We arrive at a DCF based TP of INR 4,221 (earlier TP of Rs. 4360; implied earnings target multiple of 31x on FY24 EPS). TCS is currently trading at 31x/27x on FY23/24 EPS of 119.6/136.6 with revenue/EPS CAGR of 12.5%/16.2% over FY22-24E.

More Info

At 13:08 hrs Tata Consultancy Services was quoting at Rs 3,710.40, up Rs 14.00, or 0.38 percent.

It has touched an intraday high of Rs 3,738.60 and an intraday low of Rs 3,650.05.

It was trading with volumes of 211,705 shares, compared to its thirty day average of 112,202 shares, an increase of 88.68 percent.

In the previous trading session, the share closed up 0.26 percent or Rs 9.55 at Rs 3,696.40.

The share touched its 52-week high Rs 4,045.50 and 52-week low Rs 3,004.80 on 18 January, 2022 and 03 May, 2021, respectively.

Currently, it is trading 8.28 percent below its 52-week high and 23.48 percent above its 52-week low.

Market capitalisation stands at Rs 1,372,496.02 crore.

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