Brokerage firm Motilal Oswal is neutral on the stock of TCS and sees an upside of just 4 per cent on the stock.
"We interacted with TCS' senior leadership during a sell side event on 11 Dec'20 during which they shared their perspective on the multi-year opportunity on account of a broader Cloud adoption," the brokerage firm has stated.
Here are the key highlights from the meet of Motilal Oswal with the TCS Management
Cloud is now the main growth driver for the IT industry
As per TCS' management, the IT Services industry is seeing significant traction from Cloud adoption across all industries. This echoed the outlook shared by industry peers (INFO, WPRO, LTI, etc.) over the last one month.
The shift to the Cloud has accelerated due to the impact on businesses from the COVID-19 lockdown, which has convinced clients on the need and security associated with Cloud. A recent survey undertaken by TCS indicates that less than 30% of corporates are prepared in areas like Cloud, which should drive meaningful investment.
They see the current Cloud adoption wave as similar to the ERP adoption in early 2000s, which helped Indian IT Services industry scale up and drove enterprise spend for over a decade. Hence, they have created individual units to collaborate with key hyperscalers, similar to ERP vendors in the last cycle.
Valuations already factoring in long-term demand
According to Motilal Oswal Institutional Equities report, TCS has a historical track record of adapting to multiple business challenges and technology change cycles ahead of its peers. It has consistently maintained its market leadership, best-in-class operational metrics, and high return ratios.
"We expect the company to remain relatively better positioned (v/s the peer group) over the medium to long term and to benefit from the uptick in Digital investments. While we continue to be positive on the company's long-term outlook, we remain Neutral as the stock is currently trading upwards of 2STDev its historical median, which suggest that the stock is fully factoring in the multi-year growth opportunity and has limited room for error. Our target price implies 27x FY22E EPS on our unrevised estimates," the brokerage firm has stated.
The stock of TCS was last trading at Rs 2,782 on the NSE.
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