Buy Tata Consultancy Services; target of Rs 4298: Geojit

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

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Geojit's research report on Tata Consultancy Services

Tata Consultancy Services, a division of Tata Sons Limited, is a global IT services organization that provides a comprehensive range of IT services to its clients in diverse industries. The Company, caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing, pharmaceutical, and utility industries. Q2FY22 revenue rose 16.8% YoY (+3.2% QoQ, +15.5% YoY on constant currency (CC) basis), led by double digit growth across all divisions. EBITDA margin contracted 70bps to 28.0% owing to high cost of sales and operating costs. Adj. PAT surged 10.7% YoY on higher other income. Company plans to hire over 40,000 freshers during FY22, anticipating strong demand in coming quarters. Strong TCV, new deals acquisition, robust growth across segments will continue to drive performance in coming quarters, for which the hiring cycle has also picked up pace.

Outlook

We reiterate our BUY rating on the stock with a revised target price of Rs. 4,298 based on 36x FY23E adj. EPS.

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