Our target price of Rs 3,070 is based on 27x Sep-22E EPS (24x earlier) with EPS CAGR at 16% over FY21-23E. We maintain ADD on TCS, following a stellar 2Q performance and a strong commentary. Key positives included the following: (1) strong deal wins (including Phoenix), supported by market share gains, vendor consolidation with a high number of small and mid-sized deals enabling faster transition) and a balanced deal pipeline; (2) broad-based growth across core verticals (BFSI, Retail & CPG rebound) and core geographies (UK to be volatile); (3) resumption of hiring momentum with 12,000 fresher on-boarding planned in 3Q (7,000 in 1Q) and wage increase, (4) operational resilience reflected in higher utilisation, lower attrition, lowest-ever DSO (including unbilled) leading to strong FCF generation-linked to better payout (Rs 160bn buyback announced).

TCS' growth of 7.2% USD outperformed street's estimates.

Tata Consultancy Services Ltd (TCS) reported strong broad based growth in Q2 FY21, revenue stood at Rs. 40,135 crs up 3.0% YoY and 4.7% QoQ. Operating profit showed a growth of 18.5% YoY at Rs. 11,429 cr, operating margin grew by 260 bps at 26.2% than previous quarter aided by strong execution

We recommend a BUY on TCS Ltd with a Target Price of Rs 2750, an upside of ~5% from CMP of Rs. 2611 and Stop Loss Rs 2500.

Reiterate positive outlook: Despite the recent outperformance/re-rating (valuations at +2SD with IT index outperforming NIFTY by 17/20% over 3M/6M), we remain positive on the sector based on (1) growth longevity and acceleration (FY21-23 incremental revenue growth > FY17-21 period, factoring -2.0%, +9.8%, +8.7% USD revenue growth by tier-1 in FY21/22/23E), and (2) resilient service portfolio (tier-1 IT aggregate to reach pre-COVID revenue by 3QFY21) even in an extended pandemic scenario. Key risks are intermittent volatility with upcoming US elections and unfavourable USD-INR swing. We roll forward valuations to Sep-22E, and our preferred picks include Infosys, HCL Tech, Mphasis, LTI, Persistent, Sonata and Mastek. The IT sector (coverage universe) is expected to bounce back to +3.2% QoQ in 2QFY21E, following a 6% QoQ decline in 1QFY21. We expect tier-1 IT to deliver revenue growth in the range of -0.5% to +3.5% QoQ in CC terms, and expect an additional cross-currency impact in the range of +140-170bps QoQ. Growth is backed by (1) strong deal flow (pipeline/conversion), (2) improvement in execution (transition timelines and reversal in supply-side challenges). The three enormous industry tailwinds for Indian IT which are supporting broad-based acceleration include: (1) increase in priority for tech spend/budgets over other budgets for enterprises, (2) compression of timelines for core IT systems transformation, cloud migration and multi-cloud interoperability, and (3) vendor consolidation (partner-led engagements, large deal constructs, and higher existing customer CSAT led).

We upgrade TCS to Buy from Hold with a revised PT of Rs. 2,600, given strong earnings growth potential over FY2021-23E Company best-placed to leverage next transformation wave given early investments on tech spend areas, strong delivery model, client proximity and status as preferred digital partner of large enterprises....

While BFSI vertical revenues of Indian IT players contracted in Q1FY21, we expect a swift recovery to pre-Covid growth levels through FY21 on the back of (1) receding supply challenges and (2) steady technology budgets at large US banks.

Tata Consultancy Services, a division of Tata Sons Limited, is a global IT services organization that provides a comprehensive range of IT services to its clients in diverse industries. The Company, caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing,...

Tata Consultancy Services (TCS) reported Q1FY21 result, Impact of the pandemic played out broadly in line with expectations Tata Consultancy Services (TCS) for the quarter ended Jun 2020 reported a consolidated revenue of Rs 38322 crore, a fall of 4% compared to sequential previous quarter ended Mar 2020 revenue of Rs 39946 crore. Lower revenue for the quarter is largely as revenue of all...

We maintain REDUCE on TCS We maintain REDUCE on TCS, following a miss on 1Q revenue/margin, offset by improving outlook. Valuations at >1SD more than adequately factor in the recovery trajectory, although the improving near-term visibility could keep the stock price elevated. Key positives include the following: (1) growth recovery is expected from 2Q (reversal of supply dent ~150bps); (2) BFSI vertical resilience is supported by strong deal wins (book-to-bill at 1.33x ex-Standard Life) and pipeline; (3) recovery trajectory is expected in continental Europe; (4) the companys strong cash generation is supported by a stable DSO in a tough quarter. Key concerns include: (1) recovery lag in Retail & CPG vertical (sub-vertical impact), manufacturing vertical, and (2) UK geographys performance (BFS weakness). Our target price of Rs 1,980 is based on 21x FY22E (+2% increase in EPS estimate).

TCS reported sluggish results in Q1FY21; revenue stood at Rs. 38,322 crs a decline of 4% QoQ and 7.1% QoQ in CC terms. Operating profit showed a de-growth of 10% QoQ at Rs. 9,048crs, while operating margin declined by 150 bps QoQ at 23.6% due to lower utilization and pricinng pressure.

TCS's Q1FY21 performance was a mixed bag with a miss on operating performance but healthy deal wins.

TCS's Q1FY21 revenue decline of 6.9%/7.8% QoQ/YoY in CC was a miss to our forecast. EBIT margin of 23.6%, -150bps QoQ was also a miss. Further, higher than expect effective tax rate (ETR) resulted in higher miss at EPS level. In Q1, TCS has secured deals with TCV of US$6.9 bn (ex-Phoenix Standard Life deal) vs. US$5.7 bn YoY. TCS believes that the impact of Covid-19 pandemic has bottomed out in Q1FY21 and has maintained its revenue growth outlook for rest of FY21. We factor Q1FY21 miss and cut FY21E/22E revenue (US$) by 3%/2.5% and EPS by 2.6%/2.9%. We now forecast FY21 revenue to decline by 5.1% YoY and revive to a...