Motilal Oswal recommended Neutral rating on TCS with a target price of Rs 2300 in its research report dated July 10, 2020.
Motilal Oswal 's research report on TCS
For 1QFY21, TCS missed our revenue (USD) / EBIT estimate by 2%/6%. However, in our view, this is not worrying given the unprecedented damage global economies have witnessed. The management undertook the best possible efforts to optimize cost (SG&A = 12.3% of sales v/s 13.5% in 4Q) and cash conversion (OCF/PAT = 133% v/s 109% in 4Q), which provided great comfort. Similar to Accenture, underlying trends were resilient. However, as we highlighted in our earlier note, lower exposure to the Healthcare vertical (10% of revenue v/s 18% for the former), which has continued to show strong traction, partly led to higher overall revenue decline. Deal wins (USD6.9b ex-Phoenix deal; +21% YoY) were stronger than our expectations (USD5.5–6.0b). More importantly, continued traction in large deals, a healthy pipeline, and better resilience in BFSI are encouraging factors. Management believes the worst impact of COVID-19 is behind (both in terms of revenue and profitability) even as some variables such as pricing and working capital cycles warrant a close watch. We expect TCS to be a key beneficiary of the COVID-19-led increase in tech intensity across verticals.
Rich multiples (22x FY22E EPS) leave limited upside in the stock, in our view. Accordingly, we remain NEUTRAL on the stock despite being positive on the company.
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