Prabhudas Lilladher has given Buy recommendation for Indian Tata Consultancy Services with a target price of Rs. 3636 in its research report issued on Apr 13, 2021

Prabhudas Lilladher’s research report on Tata Consultancy Services

TCS reported revenue of $5,989 mn, +5% QoQ in USD, exact in-line with our expectations. Almost all sectors had strong sequential growth led by BFSI (+8.1 QoQ USD), Retail and CPG (+5% QoQ), Life Sciences and Healthcare (+4% QoQ) and Manufacturing (+5% QoQ). Both captive takeover deals won in Q3 in BFSI vertical (Postbank systems and Prudential Financial) are fully ramped up in Q4. FY21 revenue came at $22.17 Bn, +0.7% USD YoY. Deal TCV of $9.2 Bn was highest ever for a quarter, +3% YoY. FY21 order book size is robust at $31.6 Bn, +17.1% YoY. Management highlighted robust pipeline of smaller deals despite strong deal closure in Q4FY21. Smaller deals are also positive because 1) Largely digital high margin deals, 2) Fast turnaround, 3) Good for near term revenue visibility. In Q4FY21, USD 500 mn would be the largest deal bagged by TCS despite deal closure at all-time high of USD 9.2 bn. They had higher volume of smaller deals as compared to earlier qtrs. Management mentioned that the strong order book and robust deal pipeline provides them much better revenue growth visibility in FY22. We consider composition of TCV a material positive as transmission of TCV into revenues could be faster aiding near-term growth.

Outlook

We continue to value TCS on 30X on FY23E earnings of INR121 to arrive at a changed TP of INR 3636 (earlier:3620).

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