Emkay Global Financial's research report on TCS
TCS reported a steady operating performance – revenue grew 1.1% QoQ (1.1% CC) to USD7.36bn, slightly missing our estimate of USD7.42bn. Growth fell short of management’s initial estimates on account of the tough macro and slower decision-making. Adj. EBITM expanded by 100bps QoQ to 26%, logging higher than our estimate of 25.1%, aided by reduction in subcontracting costs, better utilization, and productivity improvement. Company posted a record high TCV, of USD13.2bn in Q4 (book-to-bill: ~1.8x). Despite the strong deal intake and some green shoots visibility, Management remained cautious in the near term on account of weak discretionary spending and continued pressure from the sudden pause/deferment of projects by clients amid the uncertain macro. Management indicated that growth visibility has improved versus a quarter ago, and expects FY25 growth to be better than FY24.
Outlook
We increase FY25-26E EPS by 1-1.5%, factoring in the FY24 performance and higher margin assumptions. We retain REDUCE on TCS given the rich valuations; our TP nudges up, to Rs3,950/share (Rs3,900 earlier) at 25x Mar-26E EPS.
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