Buy TCS, target price Rs 5,000: Motilal Oswal Financial Services

Motilal Oswal Financial Services has a buy call on Tata Consultancy Services (TCS) with a target price of Rs 5,000. The current market price of Tata Consultancy Services is Rs 4178.3. TCS, incorporated in 1995, is a Large Cap company with a market cap of Rs 1514875.15 crore, operating in IT Software sector.

Tata Consultancy Services' key products/revenue segments include Consultancy Income and Sale of Equipment & Software Licences for the year ending 31-Mar-2024.



Financials
For the quarter ended 31-12-2024, the company has reported a Consolidated Total Income of Rs 65216.00 crore, up .35 % from last quarter Total Income of Rs 64988.00 crore and up 6.14% from last year same quarter Total Income of Rs 61445.00 crore. The company has reported net profit after tax of Rs 12444.00 crore in the latest quarter.

The company?s top management includes Mr.Keki M Mistry, Mr.N Chandrasekaran, Mr.K Krithivasan, Mr.N G Subramaniam, Ms.Aarthi Subramanian, Mr.O P Bhatt, Dr.Pradeep Kumar Khosla, Ms.Hanne Sorensen, Mr.Al-Noor Ramji. Company has B S R & Co. LLP as its auditors. As on 30-09-2024, the company has a total of 362 Crore shares outstanding.

Investment Rationale
TCS' headline revenue numbers remained flat, but the deal win TCV was encouraging, signaling potential momentum pick-up ahead. While FY24 also saw strong deal closures, FY25 revenue growth is being impacted by a higher proportion of mega cost-saving deals, which likely carried lower annual contract values, coupled with severe ramp-downs in critical client projects. Looking ahead to FY26, a recovery in discretionary client spending and a strong US economy could present a more favorable growth environment. While BSNL ramp-down is still a key risk, Motilal Oswal Financial Services believes improving deal closing cycles and the strong TCV showing in 3Q should offset some of that impact. They are also encouraged by the absence of "mega deals" in 3Q TCV, suggesting a return of short-cycle deals. The company's comments also corroborate our thesis (Technology: Bounce-back! Charting the path to revival for IT services) that clients are transitioning out of cost-takeout deals into application modernization and data engineering initiatives.

Overall, the brokerage believes tech spend recovery, which over the past six months was heavily reliant on BFS, is now spreading to other verticals such as Hi-tech and Retail. Motilal Oswal keeps its estimates largely unchanged. Over FY24-27E, they expect a USD revenue CAGR of ~6.0% and an INR EPS CAGR of ~9.3%. The target price of Rs 5,000 implies 30x FY27 EPS, with a 24% upside potential. They reiterate a BUY rating on the stock.

Promoter/FII Holdings
Promoters held 71.77 per cent stake in the company as of 30-Sep-2024, while FIIs owned 12.66 per cent, DIIs 10.84 per cent.