Buy TCS; target of Rs 3850: Motilal Oswal

Motilal Oswal's research report on TCS

TCS reported revenue of USD7.5b in 4QFY25, down 1.0% QoQ in USD terms vs. our estimated decline of 0.8%. FY25 revenue stood at USD30.2b, up 4.2% YoY in CC. 4Q growth was led by BFSI (up 1.3% QoQ). Regional markets declined 6% QoQ (BSNL), whereas all other verticals were down ~1.0% QoQ. In terms of geographies, India was down 15% QoQ, the US was flat, while Europe was up 2% QoQ. EBIT margin was 24.2% (down 30bp QoQ), below our estimate of 24.5%. PAT dipped 1.3% QoQ/1.7% YoY to INR122b (below our est. of INR126b). For the full year (FY25), revenue/EBIT/PAT increased 6.0%/4.6%/5.4% YoY (in INR terms). TCS generated an FCF of INR464b in FY25 (up 4.2% YoY). In 1QFY26, we expect revenue/EBIT/PAT to grow 2.2%/3.2%/2.8% YoY.

Outlook

TCS reported a deal TCV of USD12.2b, up 20% QoQ but down 8% YoY, bringing the FY25 TCV to USD39.4b. The book-to-bill ratio was 1.6x. We reiterate our BUY rating on TCS with a TP of INR3,850, implying a 19% potential upside.

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