Buy Tata Consultancy Services; target of Rs 2130: HDFC Securities
HDFC Securities ‘s research report on Tata Consultancy Services
Our optimism has admittedly trailed TCS’ recent performance. Our (belated) upgrade derives from confidence on TCS’ growth trajectory, supported by (1) Scale and growth dominance of Digital business (25% of rev and 45.5% YoY), (2) Growth visibility (deal wins), (3) Strong recovery and outlook in BFSI vertical (across geos) and NorthAm geography and (4) Continuity in efficient capital allocation (80 to 100% of FCF as payout).
We have factored USD rev growth of 10% and 10.1% for FY19/20E, implying 2.3/2.4% CQGR, respectively. EBIT at 25.5/26.2% is rock steady. Upgrade to BUY (Neutral earlier) with TP of Rs 2,130, 24x FY20E (20% premium to its 5-yr avg. valuations), supported by ~4.5% FCF yield and >60% RoIC.
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