ICICI Securities has given Hold recommendation for Tata Consultancy Services with a target price of Rs. 3191 in its research report issued on Oct 11, 2022
ICICI Securities research report on Tata Consultancy Services
Tata Consultancy Services (TCS) has reported better-than-expected revenue growth of 4% QoQ in CC terms vs I-Sec/consensus expectations of 3.4%/3.5% for Q2FY23. However, US$ revenue growth was lower at 1.4% QoQ due to cross-currency headwinds of 260bps QoQ. Sequential revenue growth was led by technology & services, life sciences & healthcare, manufacturing and retail & CPG. Financial services reported below company average growth in Q2FY23 due to weakness in insurance segment. In terms of markets, US led with 3.3% QoQ US$ growth. Broad based revenue growth and margins in line with estimates despite rising attrition were comforting. Deal TCV was healthy at US$8.1bn, but growth in TCV was modest at 6.6% YoY, – 1.2% QoQ. Book-to-bill was healthy at 1.2x. However, management alluded elongation of decision-making cycle reflected in qualified deal pipeline growing at slower pace than overall pipeline. Management also cited that clients are cautious on their spending decisions, especially in Europe & UK given the tough winter which might lead to shutting down of manufacturing plants creating ripple effect across industries. Discretionary retail and P&C insurance segments are also exhibiting slowdown in spending due to macro impact. We expect muted revenue growth in H2FY23 due to furloughs in Q3FY23 and weak macro environment especially in Europe & UK.
Outlook
We slightly decrease our US$ revenue estimates, but our EPS estimates increase due to FX changes (increased USD/INR assumption from 80 to 82 for H2FY23 & FY24). We forecast revenue growth of 7.6% and 6.4% for FY23E and FY24E, respectively. TCS has better-than-peers supply-side management, breadth of capabilities and deep domain expertise. While demand may slowdown in future, TCS will likely gain share from peers. It will also most likely gain in vendor consolidation exercise. Maintain HOLD with a fair value of Rs3,191 based on a target multiple of 25x FY24E earnings.
More Info
At 13:56 hrs Tata Consultancy Services was quoting at Rs 3,099.50, down Rs 21.70, or 0.70 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 1,374,768 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 23.38 percent below its 52-week high and 5.93 percent above its 52-week low.
Market capitalisation stands at Rs 1,134,122.97 crore.