Add Tata Consultancy Services Ltd for the Target Rs. 3,250 By Emkay Global Financial Services Ltd
We attended TCS’s analyst meet, where the management outlined its strategy of capitalizing on the ongoing tech transition. KTAs: 1) TCS laid out its five-pillar transformation strategy, to establish itself as the world’s largest AI-led tech services player. 2) Modernization projects—not viable earlier due to costs and complexity involved—are seeing traction due to Gen AI capabilities. AI-led modernization is emerging as a key theme. 3) TCS is engaged in AI programs with 54 of its top-60 clients, and ~85% of total clients (>USD20mn) leveraging TCS for their AI work, generating annualized revenue of USD1.5bn from AI services. 4) TCS has completed ~5,000 AI projects since CY23 (advent of ChatGPT). 5) Annualized revenue from redesigning services via AI is ~USD11bn. 6) TCS has investible surplus of USD6.3bn. It continues to prioritize capability-led M&A and advisory-led engagement models across service lines. Despite elevated investments, it continues to aspire for 26-28% EBITM, backed by operating leverage, productivity improvement, and shift toward higher-value advisory-led engagements; retain ADD and TP of Rs3,250, at 21x Sep-27E EPS.
Five-pillars of AI-led transformation
TCS’s AI agenda is built on five interconnected pillars: 1) driving internal transformation via tcsai, 2) reimagining service lines with an integrated ‘Human+AI’ delivery model, 3) shaping a future-ready talent architecture, 4) making AI tangible for clients by strengthening enterprise tech foundations and scaling AI across the industry value chain, and 5) orchestrating an AI ecosystem through deep partnerships with enterprise, domain, deep-tech, and AI-native players. This end-to-end model drives strong client stickiness and positions TCS as a long-term AI transformation partner. (Exhibit 1)
Tech modernization catalyzed by Gen AI While digital transformation began in the early 2010s, a large portion of the enterprise tech debt remains unresolved across infra, enterprise core systems, and data foundations. Per the mgmt, global cloud adoption is still ~35%, leading to an opportunity gap in modernization. In the past, modernization progressed unevenly, as several large programs were deferred due to high capital needs, complexity, and long implementation cycles. But AI is now changing this by improving speed, economics, and execution – reigniting demand for large-scale transformation initiatives across cloud migration, data modernization, S/4HANA conversion, Salesforce, and ServiceNow implementations.
Full-stack AI strategy – From infrastructure to intelligence layer TCS aspires to become the strategic partner across the complete AI tech stack, spanning Infrastructure (TCS SovereignCloud, TCS Cloud, HyperVault AI Data Centers, Semiconductor solutions), Platforms (Generative and Domain-tuned models), Frameworks and Tools (Ignio, CodePlus, CAP.AI, TCS AI WisdomNext), Applications and Agents (TCS BaNCS, TCS ADD, TCS Optumera, TCS TwinX), thereby bringing these layers together to deliver intelligence. This positioning across layers enables enterprises to move from AI experimentation to scaled deployment within a unified operating model.
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