TCS - Mega Deals Led Outperformance: HDFC Securities

HDFC Securities Institutional Equities

We have analysed Tata Consultancy Services Ltd.’s annual report and some key highlights include-

1. nearterm growth uncertainty due to weak discretionary, but medium-term growth drivers from Cloud and AI,

2. high growth skew in FY24 due to JLR (related party) and products and Platform which could continue,

3. sub-con still more than two times average employee expense despite sharp reduction in sub-contracting and employee pyramid is a margin tailwind ahead,

4. improving supply side metrics – higher certifications/learning hours/contextual masters, and

5. stable operating metrics.

We expect TCS’ growth to accelerate from 3.4% constant currency in FY24 to 6.3% and 8.2% in FY25E and FY26E with Ebitm at 25.5% and 26.0% respectively, translating into an 11.5% EPS compound annual growth rate over FY24-26E. Maintain Add on TCS with a target price of Rs 4,500, based on 28 times FY26E EPS, in line with its five year average PEG.

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