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Long tail of attrition…

About the stock: Tata Consultancy Services (TCS) is one of the leading IT service providers with a presence in BFSI, communication, manufacturing, retail & hi tech

Consistent organic revenue growth and industry leading margins (>25%)

Stable management, robust return ratios (>RoCE 40%) & payouts (~70%)

Q4FY22 Results: TCS reported its Q4FY22 results.

US$ revenues grew 2.6% QoQ to $6,696 million, up 14.3% YoY in CC terms

EBIT margins were flat at 25.0% for the quarter

The company’s TCV was at US$11.3 billion (bn) at Q4FY22

What should investors do? TCS’ share price has grown by ~3.3x over the past five years (from ~| 1,097 in January 2017 to ~| 3,700 levels in April 2022)

We revise our rating on the stock from BUY to HOLD

Target Price and Valuation: We value TCS at | 4,120 i.e. 31x P/E on FY24E EPS

Key triggers for future price performance:

TCS is key beneficiary of multi-year growth (15-20%) in digital technologies

Increase in outsourcing in Europe, vendor consolidation and deal pipeline leading to revenue CAGR of 12.2% over FY22-24E

We expect margins to be under pressure till FY24, resulting in margin contraction of 30 bps in FY22-24E

Double-digit return ratios, strong cash generation and healthy payout

Alternate Stock Idea: Besides TCS, in our IT coverage we also like Infosys

Key beneficiary of improved digital demand, industry leading revenue growth and healthy capital allocation prompt us to be positive

BUY with a target price of | 2,300

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