Target: ₹5,230
CMP: ₹4520.85
Tata Consultancy Services (TCS) has been consistently delivering resilient performance for past several quarters despite the challenging environment.
TCS has reported a solid performance in Q1, with sequential growth returning in some of the lagging verticals, especially BFSI. Further spends in BFSI towards mitigating the risk associated with legacy systems, strengthening security practices, addressing data governance, and potential rate cut tailwinds augur well for the company. EBIT margin has also seen a steady uptick on a y-o-y basis since the last few quarters.
The company has taken the wage hike headwind upfront in Q1 and is well placed to register an uptick in margins in the subsequent quarters despite the expected stabilisation of attrition and sub-contracting cost due to playing out of other margin levers such as pyramid, productivity, and utilisation.
The company is steadily building the AI and GenAI pipeline, which stood at $1.5 billion at the end of Q1FY25. TCS is well placed to deliver better performance in FY25 owing to its strong domain expertise, recovery in key verticals, ramp-up of deal wins, robust order book, and capitalise on the pent-up demand supported by potential rate cuts.
We maintain Buy on TCS with revised PT of ₹5,230 (valued at 32x Sept 26E EPS).
