TCS - Well Placed Among Tier-I Companies To Combat Macroeconomic Challenges: DRChoksey

Deven Choksey Research Report

Tata Consultancy Services Ltd. has posted strong numbers exceeding our estimates. The company has shown remarkable performance and has managed the challenging macroeconomic conditions impacting the IT industry.

TCS launched several initiatives to foster a strong engineering culture among employees and enhance skills in market relevant technologies such as Cloud, AI, Cyber Security, and more. TCS is collaborating with all major hyperscales and forming new partnerships with key players in the AI ecosystem. These efforts aim to upskill the workforce at scale and develop AI computing infrastructure to create advanced AI solutions for our customers.

TCS is well placed among the Tier-1 companies to combat the existing macroeconomic challenges and posted among the highest Q4 FY24 growth YoY (post HCLTech).

The company reported an all-time total contract of $3.2 billion and is seeing solid deal momentum across markets, resulting in double-digit growth in TCV.

The large TCV provides a clear visibility in terms of revenue and the company’s history of execution gives us confidence of future deal execution.

We retained our estimates for FY24-FY26E. We expect net revenue/ adjusted profit after tax to grow at compound annual growth rate of 9.0%/11.1%, respectively over FY24-FY26E.

We expect annual Ebit margins to remain in range of 25.5% - 26.5% for FY24-FY26E due to ongoing cost-reducing measures taken by the Company. However, we also expect the ability to expand margins beyond this is very unlikely.

We assign a P/E multiple of 26.6x to FY26E EPS of Rs 158.2 and assign a target price of Rs 4,194 per share, with a 9.3% upside from current levels. Accordingly, we maintain an Accumulate rating on TCS.​

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