Hold Tata Consultancy Services; target of Rs 3150: Emkay Global Financial

Emkay Global Financial's report on Tata Consultancy Services

TCS reported strong revenue growth of 4.1% qoq/0.4% YoY in CC terms, beating our and consensus estimates. Despite salary hike impact, Adj. EBIT margin expanded 40bps QoQ on the back of revenue acceleration, operating efficiencies and forex. Revenue growth was broad based, led by Manufacturing (7.1% CC QoQ), Communication & Media (5.5%), Life sciences & Healthcare (5.2%), and BFSI (2.0%). All geographies posted sequential growth. Cloud, analytics & insights, IoT, cognitive business operations, quality engineering and transformation platform services led growth. Management remains confident of delivering double-digit revenue growth in FY22 on the back of strong deal intakes (USD31.2bn TTM; 28% YoY), broad-based growth momentum and strengthening investments in technology in H2CY20.

Outlook

We raise our FY21/FY22/FY23E EPS by 2.8%/4.0%/4.6%, factoring in Q3 beat. We believe that TCS is well poised to benefits from acceleration in cloud adoptions and digital transformation opportunities, considering its end-to-end capabilities. However, valuations are rich. Maintain Hold with a TP of Rs3,150 (earlier Rs3,000) at 26x Mar’23E earnings.