TCS Q4 Results Review - Strong Execution; Discretionary Spending Remains Challenged: ICICI Securities

ICICI Securities Report

Tata Consultancy Services Ltd. reported a miss on revenue growth and sizable beat on Ebit margin. The demand environment remains unchanged with clients still being frugal with discretionary spends and focusing on cost optimisation.

However, there were a couple of parameters indicating optimism for future demand-

1. record deal wins;

2. TCS gaining market share in the UK;

3. green shoots in insurance; and

4. pent-up demand in the banking, financial services and insurance vertical.

We largely maintain our FY25-26E EPS. We continue to TCS at five-year average of 27 times and roll forward to Q1-Q4 FY26E EPS of Rs 160 to arrive at our revised target price of Rs 4,330 with potential 8% upside.

Upgrade to Add from Hold. Although near-term volatility in the macro environment persists, we believe TCS performs better in terms of margin and gaining market share in such scenarios (reminiscent of FY21 margin outperformance versus peers).

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