Target: ₹4,080

CMP: ₹3,542.25

Tata Consultacy Services has reported another quarter of flattish q-q CC revenue growth missing the Bloomberg consensus (BBGe) and our estimates. Solid deal wins in recent quarters did not aid revenue growth as customers continue to reassess tech spends with low RoIs.

Although TCS does not see any incremental project completion hurting revenue growth in H2-FY24, the timing of a demand recovery stays unclear. Subsiding macro concerns is key to growth recovery as deal signings ($11.2b, book-to-bill: 1.55x, BSNL: $1b+) remain strong.

Despite sluggish revenue growth, EBIT margin expanded q-q beating BNPPe/BBGe. TCS is confident of further margin expansion with cost reduction, lower sub-contracting and better utilisation as key levers. We think the continuation of strong deal wins shows TCS’ strength in cost- optimisation projects. That said, we see growth recovery to start first at INFO, helped by recent mega deals, and is now our top pick.

Downside risks to our DCF-TP are: A sharper-than-expected decline in global economic activity and GDP growth; Margin pressure from higher competition; Moderation in demand resulting in higher-than-expected impact on margin; and sustained appreciation of the INR vs the USD.