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Why brokers are betting on TCS with strong target prices ?


The Indian stock market has been abuzz with news of TCS, the world’s largest IT services provider, and its strong performance. Analysts and brokers are betting on TCS, with many bullish about it and setting strong target prices for the stock. In this article, we will look at why these top brokers in India are so bullish on TCS and what their target prices are.

TCS, one of the world’s largest IT services and solutions providers, reported its quarterly financial results for the third quarter of FY23. The company reported a revenue of USD7.08 billion, up 2.2% on a constant currency (CC) basis compared to the previous quarter, and 60bp above estimates. This was despite the seasonally weak quarter.

The company reported deal wins of USD7.8 billion, down 3.7% quarter-on-quarter but up 2.6% year-on-year. Its book-to-bill ratio stood at 1.1x, in line with expectations. The company’s EBIT improved by 50bp quarter-on-quarter to 24.5%, aided by favorable FX, improved utilization and lower sub-contractor costs, partly offset by third-party expenses and travel normalization.

In addition, the company’s long-term attrition rate moderated by 20bp to 21.3%, while the quarterly annualized attrition rate declined by 6% quarter-on-quarter. The company expects the supply situation to further ease, resulting in a continued downward trajectory in attrition in the future.

Overall, the management commentary on the demand environment indicates caution in the near-term, despite a consistent growth in the deal pipeline. This is due to macroeconomic challenges in North America and continental Europe, leading to a slowdown in deal conversion in these regions. However, TCS reiterated its aspirations of double-digit growth in revenue.

Overall, TCS reported a strong set of results for the quarter, despite macroeconomic headwinds. The company’s strategy of focusing on digital transformation and automation bodes well for its future growth prospects.

As India’s leading IT services and digital solutions provider, TCS has been a powerhouse of growth for the last few years. It has come a long way since its inception in 1968, and has built a strong reputation as a reliable and efficient IT solutions provider.

Recently, Motilal Oswal has released their estimates for TCS’s FY23/FY24/FY25 earnings per share (EPS). They have maintained their EPS estimates for the next three years, projecting a USD revenue CAGR of ~10% and an INR EPS CAGR of ~15%. This is largely in line with the company’s track record of consistent growth, even in the midst of a pandemic.

Motilal Oswal has set a target price of INR 3,810, which implies a 28x FY24E EPS and a 15% upside potential. This is an optimistic outlook, given the current market conditions. The target price is based on TCS’s strong fundamentals, such as its robust balance sheet, healthy cash flows, and world-class technology capabilities.

Given the long-term potential of TCS, Motilal Oswal has reaffirmed its Buy rating. The company has consistently outperformed on growth metrics, and its focus on digital transformation initiatives has further bolstered its long-term prospects.

At the end of the day, investors should be mindful of the long-term potential of TCS and its ability to continue to deliver consistent growth even in the most challenging of times. With Motilal Oswal’s Buy rating and target price of INR 3,810, the stock offers an attractive upside potential.  

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies are their own and not that of the website or its management. Aceink.com advises users to check with certified experts before taking any investment decisions.

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