IGI Logo

Healthy revenue growth, improving deal wins…

Tata Consultancy Services’ (TCS) revenue growth was across geographies and verticals led by a ramp up of deal wins and transformational opportunities. US$ revenues grew 5.0% QoQ to $5,987.0 million vs. our estimate of 5.0% QoQ growth and $5,987.1 million estimate. EBIT margins expanded 20 bps QoQ to 26.8%. TCS has declared an interim dividend of | 15/share. One of the key highlights was that the company’s deal pipeline continues to be healthy at US$9.2 billion. The company aspires to register double digit revenue growth in FY22E.

Cloud migration key driver of growth

TCS believes that tech refresh cycle driven by cloud migration and business transformation will play a critical role in driving multi-year technology growth. In addition, ancillary technologies developed around cloud will lead to new business models & differentiated customer experiences. The company’s investment in upskilling of its employees, investment in research & development and industry-specific solution and contextual knowledge to drive business transformation will make TCS key beneficiary of this secular demand growth in coming years. This, coupled with increased outsourcing in Europe (especially continental Europe is a sweet spot for TCS), vendor consolidation opportunities, captive carve outs in the US are expected to enable a large company like TCS to structure complex deal structure and gain market share from competition. Hence, we expect the company to register dollar growth of 13.9% in FY22E and 13.0% in FY23E.

Margins to remain robust

The company has multiple levers to drive margins like utilisation, productivity improvement, savings due to Secured Borderless Workspace (SBWS), automation and revenue growth. Hence, we expect TCS to register healthy margin improvement of ~142 bps to 27.3% over FY21-23E.

Valuation & Outlook

Healthy deal wins and robust hiring points to higher growth in coming years. Going forward, we expect the win momentum to continue. This, coupled with improving trend of cloud migration and business transformation is expected to play a critical role in driving multi-year technology growth. Going forward, global digital technologies are expected to witness robust growth (~15-20% CAGR in the next five years) led by robust growth in cloud, customer experience and robust growth in cloud native technologies. Considering TCS’ digital prowess coupled with market share gains via vendor consolidation, captive carve outs and increase in outsourcing we expect TCS to register robust growth in revenues in coming years. This, coupled with healthy margins and better capital allocation prompt us to be positive on the stock from long term perspective. Hence, we maintain our BUY rating on the stock with a revised target price of | 3,800/share (PE of 30x on FY23E EPS) (earlier target price | 3,600).

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer