Add Tata Consultancy Services Ltd for the Target Rs. 2,950 by Emkay Global Financial Services Ltd
TCS’s Q4 operating performance was in line with our expectation. Revenue grew 1.5% QoQ (1.2% CC) to USD7.6bn, marking the third consecutive quarter of sequential growth. EBITM expanded by 10bps QoQ to 25.2%, with gains from higher realizations and currency largely reinvested into capability building. Deal wins remained strong at USD12bn (book-to-bill of 1.6x; ~45% new), including 3 mega deals – M&S, a telco in the UK, and an American healthcare and pharmacy retailer. AI revenue grew to USD575mn (28% QoQ; 7.5% of revenue), led by accelerated deployments across industries. TCS reported improvement across client buckets in Q4, indicating reduced revenue leakage, incremental discretionary spending, early signs of stabilization, and growth returning to mid-sized and large accounts. The management expects FY27 to see a return to normal seasonality, with stronger sequential growth in H1 than in H2. It remains confident on sustaining momentum, supported by strong client engagement, a healthy order book, and strategic investments in AI and partnerships, while staying mindful of macro and geopolitical risks. TCS aspires to be the largest AI-led tech services firm by gaining market share through AI-led renewals, vendor consolidation, and cost optimization, evolving into a full-stack AI player and creating new revenue streams (such as AI infra build-out). We raise FY26-28E earnings marginally, factoring in Q4 performance. We retain ADD and lift TP by ~5% to Rs2,950 (from Rs2,800), at 18x Mar-28E EPS.
Results summary
Revenue grew 1.5% QoQ (1.2% CC) to USD7.6bn, ahead of our estimate of 1% CC. EBITM expanded by ~10bps QoQ to 25.3%, slightly below our estimate, driven by improved realizations from value-led delivery (+40bps) and currency (+110bps), partly offset by higher external consultant costs (-40bps), targeted intervention in critical talent certifications, upskilling, creation of niche delivery pod related investments (-40bps), investments in partnership ecosystem and higher GTM activities (-50bps), and M&A integration investments (-10bps). Order book TCV stood at USD12bn in Q4. TCV for North America, BFSI, and the Consumer business was USD5.4bn, USD3.9bn, and USD2.8bn, respectively. Headcount increased 0.4% QoQ to 584,519. TCS announced a final dividend of Rs31/share. What we like: In-line revenue growth, improvement across client bucket, robust deal intake, healthy cash conversion. What we did not like: Softness in BFSI, CME, Latam, and APAC businesses.
Growth led by ER&U and Consumer across verticals, and UK, India, and North America by geography
Growth was led by ER&U (6.1% CC QoQ), Consumer Business (2.8%), Manufacturing (1.2%), Regional Markets (1.2%), Technology and Services (1%), and Life Sciences and Healthcare (0.4%). BFSI remained flat and CMI declined 0.4%. Among geographies, growth was led by the UK (2.4% CC), India (1.7%), and North America (1.4%), while Latam and APAC declined 6.9% and 0.5%, respectively.
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