In its research report dated July 12, 2023, Sharekhan, a leading financial services company, has expressed a bullish stance on Tata Consultancy Services (TCS) and recommended a buy rating on the stock. They have set a target price of Rs 3650, indicating their positive outlook on the company’s performance.
According to Sharekhan’s analysis, TCS reported flat quarter-on-quarter revenue growth and a 7% year-on-year increase in constant currency terms. This aligns with their estimates and is primarily attributed to the growth in the Lifesciences, Healthcare, and Manufacturing verticals. However, the company’s EBIT (Earnings Before Interest and Taxes) margins dipped to 23.2%, a decrease of approximately 130 basis points, falling short of Sharekhan’s estimates by 40 basis points. This decline was largely influenced by wage hikes implemented by the company.
TCS also announced a robust order book Total Contract Value (TCV) of $10.2 billion, with a Book-to-Bill ratio of 1.4x. The distribution of TCVs was broad-based, with North America accounting for $5.2 billion, BFSI (Banking, Financial Services, and Insurance) at $3.0 billion, and Retail at $1.2 billion. The management highlighted that although clients are reprioritizing, resulting in revenue softness, there have been no significant cancellations or ramp-downs. Projects with low return on investment (ROI) are being paused. Despite the soft demand environment, TCS is well-positioned to seize opportunities arising from vendor consolidation, transformational deals, cloud services, and emerging technologies such as generative AI.
Based on their analysis and outlook, Sharekhan maintains a buy rating on TCS with an unchanged price target of Rs 3,650. The stock currently trades at 26.6x/24.7x FY24/25E EPS (Earnings Per Share).
It is important to note that the views and investment tips expressed by Sharekhan in their research report are their own and not necessarily endorsed by the website or its management. Investors are advised to exercise caution and consult certified experts before making any investment decisions.
Disclaimer: The article serves as a summary of the research report by Sharekhan. The information provided should not be considered as financial advice. Readers are encouraged to conduct their own research and consult with financial experts before making investment decisions.
