Reduce TCS; target of Rs 3950: Emkay Global Financial

Emkay Global Financial's research report on TCS

TCS noted a tad better than expected operating performance in Q1. Revenue grew 1.9% QoQ (2.2% CC) to USD7.51bn, slightly surpassing expectations and largely backed by higher than estimated revenue contribution from the BSNL deal (almost half of incremental revenue QoQ). EBITM fell by 130bps QoQ to 24.7% due to wage hike. Deal wins moderated sequentially owing to timing of deal closures, but remained healthy at USD8.3bn (book-to-bill: 1.1x) and well within the management’s guided comfortable range of USD7-9bn per quarter. Despite broad-based revenue growth, healthy deal wins, and strong pipeline, the Mgmt refrained from commenting on growth sustainability, considering the near-term demand volatility caused by weakness in discretionary spending and unabated pressure from the sudden pause/deferment of projects by clients amid macro uncertainty.

Outlook

The management reiterated FY25 revenue growth being better than that in FY24. We largely retain FY24-27E earnings and our REDUCE on TCS, as well as TP of Rs3,950/share at 25x Jun-25E EPS.

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