“BUY” TCS With A Target Price of Rs. 4,400: Sharekhan

The brokerage’s take on TCS

In its research report, Sharekhan Ltd has said that "TCS' strong digital competencies, earlier investments in capabilities, robust client mining, best-in-class talent retention and continued investments on building capabilities in emerging technologies places TCS to become the preferred digital transformation partner of its clients. As TCS remains the leader both in terms of size and market positioning in the digital technologies, it can be benefited from the large lift-shift-transform deals which include vendor consolidation, cost take-outs and captive carve-outs."

The brokerage has claimed that "We believe TCS' revenue growth momentum is likely to continue in Q3FY2022 despite weak seasonality, led by healthy deal wins, broad-based growth across verticals, recovery in Europe business and strong demand. We estimate a strong 16% y-o-y revenue growth in FY2022E, led by record deal wins, a healthy deal pipeline, strong net employee addition and a multi-horizon transformation demand across industries and geographies."

According to the research analysis of the brokerage "Though margins are expected to remain under pressure in the near-term due to supply-side challenges and increasing subcontracting expenses, we believe these margins headwinds would be offset by operating leverage from strong revenue growth and pyramid management. The management remains confident in sustaining the industry-leading margin performance going ahead given its superior employee retention policy, pyramid flattering from graduate onboarding and stable pricing at portfolio level."

Buy TCS With A Target Price of Rs. 4,400

Sharekhan has reported that "TCS' stock has underperformed its large peers and the CNX IT Index in the last one year owing to a miss in revenue performance for the second consecutive quarter and we believe it would reverse given continued strong large deal TCV momentum, continued industry-leading margin performance, digital share gains and strong demand outlook. We believe TCS is well-positioned to capture growth and transformation opportunities given its competencies across technologies and industries, strong contextual knowledge, a mature product and platform portfolio and solid execution capabilities."

According to the brokerage's point of view "We expect the company's US Dollar revenue and earnings to clock an 11%/14% CAGR over FY2022- 24E. At CMP, the stock trades at a reasonable valuation of 29x/26x its FY2023E/FY2024E earnings, which is justified given strong revenue growth potential and industry-leading margins and return ratios and a large talent pool. Hence, we maintain a Buy on TCS with an unchanged PT of Rs. 4,400."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.