Prabhudas Lilladher's research report on Tata Consultancy Services
TCS reported revenue of USD 7.7 bn, up ~1.1% QoQ CC below our & consensus estimate of 1.5% & 1.3% QoQ CC growth respectively while in dollar terms the revenue grew by 2.2% QoQ (PLe 2.3% & consensus estimate of 1.9% QoQ growth). The growth during the quarter was largely driven by Regional market, predominantly the BSNL deal that is at its peak (~150 bps contribution in Q2 per our estimates). Green shoots continued in BFSI, while growth within certain pockets remained volatile, partly attributed to work re-scoping and weak spending sentiment. EBIT margin declined by 60 bps QoQ to 24.1%, on account of higher third-party expenses and inching-up subcon cost, which partly offset by currency tailwinds & missing Q1 wage hike impact. TCV grew by 3.6% QoQ to USD 8.6 bn and BTB remained stable at 1.1x.
Outlook
TCS is well positioned to capture those spends and win disproportionately among its peers. We estimate USD revenue/earnings CAGR of 8.0%/11.8% over FY24-FY27E. The stock is currently trading at 24x FY27E, we are assigning P/E of 28x to FY27E with a target price of INR 4,920. We maintain “BUY” rating.
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