Motilal Oswal has given Neutral recommendation for TCS with a target price of Rs. 3400 in its research report issued on Jul 09, 2021
Motilal Oswal’s research report on TCS
Tata Consultancy Services (TCS) reported revenue growth of 2.4% QoQ CC in 1QFY22, below our estimate of 3.6%. This was primarily due to sharp de-growth in its India business (-14.1% QoQ) on account of the second COVID wave. Excluding the impact in regional markets, core business growth of 4.1% QoQ CC was broadly in-line. The EBIT margin at 25.5% (marginally above our estimates) declined 130bp QoQ, primarily due to annual wage hikes (170bp impact). TCS delivered another quarter of strong deal wins (USD8.1b), with a book-to-bill ratio of 1.3x, despite the absence of any mega deals. TCS has consistently reported a book-to-bill ratio above 1.0x, without support from USD500m+ deals (4QFY21 record TCV comprised just one such deal). We see this as positive for the company as it should improve growth visibility. Consistent performance from TCS, post the initial phase of the COVID pandemic, indicates continued strength in the tech spending environment, along with its ability to capture outsized market share. Management commentary on enterprise demand, especially cloud, implies a positive outlook for peers as well.