Axis Securities Recommends Hold Rating On This Multibagger Tata Group Stock

Leading brokerage firm Axis Securities has recommended hold rating on Tata Group stock, Tata Consultancy Services Ltd. TCS reported robust deal wins of $34.6 Bn in FY22, spread across verticals and geographies with an impressive book-to-bill ratio of 1.3.

TCS stock outlook

The current market price of the stock is Rs 3354.55 apiece with a 52-week high of Rs 4045 apiece and 52-week low of Rs 2953 apiece.

TCS Market Capitalization

The stock has a market capitalization of Rs 12,27,337.31 crore.

TCS Return

The stock has given multibagger returns with 168% return in 5 years, 51% return in 3 years, and 6% return in 1 month.

TCS Financial Review

The company reported revenue of Rs 1,91,754 Cr in FY21, up 16.7% YoY. Its operating margins were aided by higher offshoring, higher utilization, lower attrition, and a favourable currency mix and declined only slightly by 60bps to 25.3%.

TCS Operational Review

TCS has built a strong and geographically-diversified presence in terms of revenue distribution. While the majority of the company's revenue was contributed by the US and Europe at 52% and 31.9% respectively, India contributed 5.1% with the balance 11.0% coming from Others. In terms of segments, the BFSI contributed 32% of the company's overall revenues while Retail and Communication contributed 15.1% and 6.5% of the same.

TCS Key Competitive Strengths

These include (i) Robust demand for digital transformations and other services; (ii) Execution prowess to cater to the robust demand across geographies; (iii) Strong foothold across geographies, reducing geographical dependence; iv) Focus on strategic clients to provide long-term sustainable growth.

TCS Growth Drivers

These include (i) Strong domain expertise will help to capitalize on demand, and (ii) Increased investment in the BFSI vertical on automation to help in garnering further market share.

TCS Valuation

According to Axis Securities, "The management has guided double-digit growth in FY23 in the backdrop of robust deal wins. However, supply-side constraints may persist which is likely to impact the margins. We recommend a HOLD rating on the stock and assign a 27x P/E multiple to its FY23E earnings of Rs 135.5/share to arrive at a TP of Rs 3,650/share, implying an upside of 8% from the CMP.

About TCS

Tata Consultancy Services is an IT services, consulting, and business solutions organization that has been partnering with many of the world's largest businesses in their transformation journeys for over 50 years. TCS offers a consulting-led, cognitive-powered, integrated portfolio of business, technology, and engineering services and solutions. This is delivered through its unique Location Independent Agile^TM delivery model, recognized as a benchmark of excellence in software development. A part of the Tata group, India's largest multinational business group, TCS has over 592,000 of the world's best-trained consultants in 55 countries.

Disclaimer

The above stock was picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.