Motilal Oswal has given Buy recommendation for TCS recommended buy rating on the stock with a target price of Rs 4240 in its research with a target price of Rs. 4240 in its research report issued on Apr 12, 2022

Motilal Oswal’s research report on TCS

TCS reported a revenue of USD6.7b in 4QFY22, up 3.2%/2.6% QoQ in constant currency (CC)/USD terms, but slightly below our estimate of 3.1% QoQ growth. Revenue in 4QFY22 was driven by Retail and Manufacturing, while regional markets and others remained weak. EBIT margin was flat QoQ at 25% in 4QFY22 (in line). Given its record high employee headcount of 35k and continued sub-contracting pressure (+5% QoQ), we view the flat margin as a positive. Net profit rose 1.6% QoQ to INR99.3b (in line). TCS clocked record-high deal wins at USD11.3b (book-to-bill ratio at 1.7x), with two mega deals of ~USD1b each (with a tenor of seven-to-ten years). These strong deal wins suggest a robust revenue growth outlook for FY23. The management’s commentary on the demand environment continues to remain strong. It said it is in a better place v/s 4QFY21. With a record high employee addition, higher visibility on Cloud-led spending over the next two-to-three years, and strong demand, we are factoring in a revenue growth of 13.9% YoY in CC terms in FY23. While deal TCV in 9MFY22 was in a narrow range, a record TCV in 4Q should help ease concerns on smaller deals dominating flows in the sector. TCS has been able to tap into large transformational and platform-led opportunities, which should help position itself well in the context of its peer group in FY23. While the management indicated a muted margin over the next few quarters, it is seeing an uptick in pricing (including COLA adjustments in existing contracts), which should help profitability recover by 2HFY23. Moreover, TCS should start seeing some benefit in overall cost in FY23 from its fresher intake of 100k in FY22. We expect margin to continue to remain under pressure and below their long-term guided range of 26-28%.

Outlook

We have marginally (1%/2%) raised our FY23/FY24 EPS. We expect a 13.4%/ 16.5% USD revenue/INR EPS CAGR over FY22-24. Our TP of INR4,240/share, implies 30x FY24E EPS, with a 15% upside potential. We maintain our Buy rating on the stock.

More Info

At 13:08 hrs Tata Consultancy Services was quoting at Rs 3,710.40, up Rs 14.00, or 0.38 percent.

It has touched an intraday high of Rs 3,738.60 and an intraday low of Rs 3,650.05.

It was trading with volumes of 211,705 shares, compared to its thirty day average of 112,202 shares, an increase of 88.68 percent.

In the previous trading session, the share closed up 0.26 percent or Rs 9.55 at Rs 3,696.40.

The share touched its 52-week high Rs 4,045.50 and 52-week low Rs 3,004.80 on 18 January, 2022 and 03 May, 2021, respectively.

Currently, it is trading 8.28 percent below its 52-week high and 23.48 percent above its 52-week low.

Market capitalisation stands at Rs 1,372,496.02 crore.

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