TCS Q4 Results Review - Deal Wins To Ensure Better FY25, Commentary Remains Cautious: Dolat Capital

Dolat Capital Report

Tata Consultancy Services Ltd. reported constant currency revenue growth of 1.2% QoQ, (below our estimate of 1.4%), driven by ramp-up of BSNL deal. Adjusted operating profit margin up 100 basis points QoQ at 26% (our estimate: 25.5%), driven by sub-con optimisation and productivity benefit (+190 bps) partially offset by third-party and travel cost (-90bps).

Trailing twelve months total contract value stood at $42.7 billion (up 25% YoY) led by mega deal of Aviva. TCS expects FY25E growth to be better than FY24 led by strong execution while continues to exercise caution due to paused discretionary spends and muted overall spends expectation.

We tweak our FY25/FY26E earnings per share estimates by +1.8%/+0.5% assuming weak growth impact would get offset by improved cost optimization measures and maintain ‘Reduce’ rating with target price of Rs 3,920 valuing at 26 times on FY26E EPS (implies ~three times on price-to-earnings growth basis).

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