Broking firm ICICI Direct has upgraded the stock of Tata Consultancy Services (TCS), the largest IT company of India, from HOLD to BUY in its Result Update report.
The broking firm believes that going forward, global digital technologies are expected to witness robust growth (~20% CAGR in next five years) led by robust growth in cloud, customer experience and robust growth in cloud native technologies. TCS is expected to be a key beneficiary of this trend leading to double-digit revenue growth over a sustainable period. This, coupled with industry leading growth & solutions, better capital allocation, stable management and higher revenue growth trajectory than witnessed in the past warrant a multiple re-rating for the company.
The ICICI Direct report says, "We now assign 28x P/E to the company’s FY23E EPS. Based on this, we arrive at a target price of Rs. 3300/share and upgrade the stock from HOLD to BUY." The report explains, "Tata Consultancy Services (TCS) reported healthy Q2FY21 results that were above our estimates. The company reported 4.8% QoQ growth in dollar revenues (in constant currency terms), above our estimate of 2.6% QoQ growth. The growth was broad based across geographies and verticals. Margins increased 260 bps mainly due to an improvement in gross margins and lower SG&A expenses."
The TCS board has approved a buyback of Rs. 16,000 crore to buy back ~5.33 crore shares at Rs. 3,000/share. The company has also declared an interim dividend of Rs. 12/share (the record date is October 15, 2020 while payment date is November 3, 2020). (Share Manthan, October 8, 2020)
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