TCS Q3 Results Review - Signs Of Optimism, Though Discretionary Demand Remains Challenged: ICICI Securities

ICICI Securities Report

Tata Consultancy Services Ltd. has reported beat on both revenue (despite challenging demand environment) and margin fronts despite headwinds from BSNL deal ramp-up in Q3 FY24. Management mentioned that the demand environment remains unchanged with clients still cutting down on discretionary spends and focusing on cost optimisation.

However, there were a couple of statements indicating optimism for future demand –

1. TCS is gaining market share in the UK,

2. green shoots in Europe and

3. pent-up demand in some verticals may aid growth as and when client sentiment improves, though the timing of the same is still uncertain.

We increase our earnings per share estimate by 5.5%/1.7% for FY25/26E led by an increase in margin estimates.

We continue to value TCS at 25 times on Q5-Q8 EPS of Rs 155 to arrive at our revised target price Rs 3,872, with potential 4% upside. Maintain 'Hold'.

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