Buy TCS; target of Rs 4600: Motilal Oswal

Motilal Oswal's research report on TCS

TCS reported revenue of USD7.36b in 4QFY24, up 1.1% QoQ in constant currency (CC) terms, 110bp below our estimates but in line with Bloomberg consensus, despite ongoing demand weakness. The growth was driven by India (up 11% QoQ/37% YoY, aided by BSNL scale up) and the UK (up 3.6% QoQ), while North America and Continental Europe were weak. TCS reported its best quarterly deal TCV of USD13.2b (up 63% QoQ/32%YoY, book-to-bill ratio at 1.8x), including one mega deal. FY24 YoY CC USD growth was 3.4%. The company maintained its strong operating margin performance, with EBIT margin up 100bp QoQ to 26.0%, the lower end of its medium-term guidance band for the first time in the last 12 quarters. This was 100bp ahead of our estimates, and was aided by lower subcontracting costs and continued cuts in headcount (-1.8k QoQ). Attrition (LTM) declined by 80bp QoQ to 12.5%. 4Q PAT was in line at INR124b (20.3% PAT margin). FY24 PAT stood at INR462b (up 9.3% YoY). TCS generated FCF of INR443b (up 6.9% YoY) during the year.

Outlook

We have broadly maintained our FY25-FY26 EPS estimates. Over FY24-26E, we expect a USD revenue CAGR of ~10% and an INR EPS CAGR of ~15%. Our TP of INR4,600 implies 27x FY26E EPS, with a 15% upside potential. We reiterate our BUY rating on the stock.

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TCS - 15042024 - moti