Hold Tata Consultancy Services; target of Rs 3500: Emkay Global Financial

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Emkay Global Financial's report on Tata Consultancy Services

Revenue growth missed expectations due to a sharp decline in the India business (-14.1% QoQ due to the second Covid wave). Revenue grew 2.4% QoQ in CC terms in Q1 (ex-regional markets, grew 4.1%). EBITM declined 130bps QoQ to 25.5% due to salary hike. Revenue growth was broad-based, driven by Life Sciences & Healthcare (7.3% QoQ CC), Technology & Services (5.0%), Manufacturing (4.8%), Retail & CPG (4.4%) and BFSI (3.1%). All geographies, except for India, posted sequential growth. Management remains confident about the revenue growth trajectory in FY22 on broad-based demand, strong deal intake (USD8.1bn in Q1; 17% YoY), healthy deal pipeline, and traction in cloud, cyber security, analytics and enterprise application services.

Outlook

We lower our FY22/23/24 EPS estimates by 1.3%/0.1%/0.1%, after factoring in Q1FY22 revenue miss. TCS is well-positioned to benefit from the strong demand environment, acceleration in cloud adoption and digital transformation opportunities. However, revenue miss and rich valuations will weigh on stock performance. Maintain Hold with a TP of Rs3,500 (28x Jun'23E EPS).

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