Tata Consultancy Services - Q2FY21 Result Update - ICICI Securities

Tata Consultancy Services (TCS) reported healthy Q2FY21 results that were above our estimates. The company reported 4.8% QoQ growth in dollar revenues (in constant currency terms), above our estimate of 2.6% QoQ growth. The growth was broad based across geographies and verticals. Margins increased 260 bps mainly due to an improvement in gross margins and lower SG&A expenses. The TCS board has approved a buyback of Rs. 16,000 crore to buy back ~5.33 crore shares at Rs. 3,000/share. The company has also declared an interim dividend of Rs. 12/share (the record date is October 15, 2020 while payment date is November 3, 2020).

Valuation & Outlook

Going forward, global digital technologies are expected to witness robust growth (~20% CAGR in next five years) led by robust growth in cloud, customer experience and robust growth in cloud native technologies. TCS is expected to be a key beneficiary of this trend leading to double-digit revenue growth over a sustainable period. This, coupled with industry leading growth & solutions, better capital allocation, stable management and higher revenue growth trajectory than witnessed in the past warrant a multiple re-rating for the company. Hence, we now assign 28x P/E to the company's FY23E EPS. Based on this, we arrive at a target price of Rs. 3300/share and upgrade the stock from HOLD to BUY.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_TCS_Q2FY21.pdf

Shares of TATA CONSULTANCY SERVICES LTD. was last trading in BSE at Rs.2737.4 as compared to the previous close of Rs. 2716.15. The total number of shares traded during the day was 277896 in over 19870 trades.

The stock hit an intraday high of Rs. 2769 and intraday low of 2703. The net turnover during the day was Rs. 758445543.

Source : Equity Bulls

Keywords