Neutral TCS; target of Rs 3770: Motilal Oswal

Motilal Oswal's research report on TCS

TCS reported an in line revenue growth of 4% QoQ CC in 2QFY22. However, USD revenue growth (2.9% QoQ) missed our estimate of 3.7% QoQ growth. EBIT margin expanded by 10bp QoQ to 25.6%, but was lower than our estimate of 26.2%, on supply side challenges. PAT stood at INR97b, up 6.9% QoQ, aided by higher other income and stable ETR. The company reported an OCF/PAT of 103% and a FCF/PAT of 97% on good working capital management, indicating the ability to generate strong cash flow. 1HFY22 USD Revenue/EBIT/PAT grew 19.1%/20.6%/28.4% YoY.

Outlook

We remain positive on the company, given its strong growth outlook. But high valuations leave limited room for disappointment. A miss on estimates in 2QFY22, coupled with a soft margin outlook, can result in near term pressure on the stock. Our TP of INR3,770 per share implies 31x FY23E EPS. We maintain our Neutral rating.

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