ICICI Direct recommended hold rating on Tata Consultancy Services with a target price of Rs 2065 in its research report dated April 15, 2019.
ICICI Direct's research report on Tata Consultancy Services
TCS reported a healthy performance on the revenue front (growth of 2.8% QoQ in dollar terms vs. our estimate of 1.9%) while higher SG&A led to a miss on the EBIT margins (decline of 50 bps QoQ to 25.1%). US$ revenue growth was led by digital (5.9% QoQ) supported by banking & financial services (2.8% QoQ), communication (2.8%), manufacturing (2.8%) and lifesciences & healthcare (4.2% QoQ). We expect a healthy performance for the next two years and estimate growth of 9.7% CAGR to US$25.2 billion in FY19-21E and EBIT margins of 25.5% in FY21E. Valuation & Outlook Although a hangover remains on account of global macro uncertainty, positives from digital moving towards core, acceleration in digital and optimistic commentary across various verticals are expected to play their part.
Hence, we upgrade our valuation multiple and value the stock at ~21x FY21E EPS with a revised target price of Rs 2065. We maintain our HOLD rating on the stock.
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