Buy Tata Consultancy Services; target of Rs 3739: KR Choksey

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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KR Choksey's research report on Tata Consultancy Services

Tata Consultancy Services Ltd (TCS) Q2FY23 performance is marginally lower than our estimate. Dollar Revenue was up 1.4% QoQ to USD 6,877mn (KRChoksey est. USD6,920mn). Rupee revenue grew by 4.9% QoQ to INR 5,53,090mn. Reported operating margin expanded by 90 bps to 24% on the back of Lower employee expenses, operating leverage, and lower subcontractor expenses. Reported Net profit of INR 1,04,650mn was slightly lower than KRChoksey est. of INR 1,05016mn with margin of 18.9%. In this quarter, TCS has registered a deal bookings of USD 8.1bn, with a book-to-bill ratio of 1.2x (USD 8.1bn TCV vs. USD 8.2bn in Q1), reflecting a stable demand environment. The total deal wins included USD 2.3bn in BFSI and USD 1.6bn in Retail & CPG. Operating margin is expected to improve on the back of lowering the sub-con cost, improvement in retention (outlook of attrition decline ahead), pricing, and efficiency. The company declared an interim dividend of INR 8 per share.

Outlook

Our target price of INR 3,739 is based on 27.5x Mar-24E EPS with EPS CAGR of 14.4% over FY22-24E.

More Info

At 15:31 hrs Tata Consultancy Services was quoting at Rs 3,064.50, down Rs 56.70, or 1.82 percent.

It has touched an intraday high of Rs 3,144.55 and an intraday low of Rs 3,054.75.

It was trading with volumes of 1,428,591 shares, compared to its thirty day average of shares, a decrease of percent.

In the previous trading session, the share closed up 1.84 percent or Rs 56.25 at Rs 3,121.20.

The share touched its 52-week high Rs 4,045.50 and 52-week low Rs 2,926.00 on 18 January, 2022 and 26 September, 2022, respectively.

Currently, it is trading 24.25 percent below its 52-week high and 4.73 percent above its 52-week low.

Market capitalisation stands at Rs 1,121,316.29 crore.

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Tata Consultancy Services - 111022 - kr