Hold Tata Consultancy Services; target of Rs 2994: Arihant Capital

Arihant Capital 's research report on Tata Consultancy Services

TCS beat all street estimates with the Q2FY21 earnings figures. Consolidated revenue stood at Rs 401,350 mn, registering +3.0% YoY/4.7% QoQ. Consolidated EBIT stood at Rs 105,150 mn, up by 12.3% YoY/16.2% QoQ. On the margins front, EBIT margin improved by 218bps YoY/259bps QoQ to 26.2%, due to check on other operating expenses. Consolidated PAT saw a fall of 7.1% YoY to Rs 74,750 mn vs 80,420 mn in Q2FY20 due to provisioning of Rs 12,180 mn for legal case against the company. It proposed a share buyback of Rs 160,000 mn (roughly 1.5% of shareholder’s equity) for a price of Rs 3,000 per share. The company also announced of second interim dividend of Rs 12 per equity share of Re 1 each, over last quarter’s interim dividend of Rs 5 per share.

Outlook

We value TCS at PE of 32x to its FY22E EPS of Rs 94, which yields a target price of Rs 2,994 per share. We maintain our rating at HOLD for TCS.

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