Motilal Oswal’s Farsighted Research Report on TCS: 4200


Companies that are in the IT sector can expect to see an acceleration in the structural growth over the medium term as companies start a multi-year cloud-lead upgrade cycle. This tectonic shift in the business model should lead to a substantial increase (5% revenue v/s 3% previously) in the technological budgets of business clients, adding 5 to 6% incremental growth for the sector. Growth in the cloud would Lead to this phase of technology spending, also a considerable growth rate can be seen, somewhere in the “teens”.

Along with double-digit growth in digital services, this growth can more than compensate for the downgrading in the traditional service sector. According to the report, TCS is among the prominently positioned companies to reap benefits from this structural spending uptick, and hence, its stock should be upgraded to a buy rating. TCS is expected to benefit from the sustained growth given the following reasons:

  1. Strong organic capabilities
  2. Deal win momentum
  3. Strong employee additions

The outlook of the report stated a positive view for the company given the strong potential for growth and development. The expected TP of INR 4,220 implies 30x FY24E EPS. The rating is upgraded to Buy. Moreover, the stock price before the release of the report was around ₹3530. After the release of the Oswal report, it’s around ₹3630.

An excerpt from Oswal report’s positive conclusion:

“TCS  has significantly invested in digital technologies mobile, cloud, big data analytics, and social media. TCS’ ‘Customer Collaboration Center’ in Silicon Calley is a digital innovation lab, where customers from retail, telecom, banking, manufacturing, and other industries are collaborating to shape the digital future of their business. The company’s digital innovation lab has built several digital applications and solutions for multiple industries, which are being implemented by customers. By investing early, TCS has built up a significant scale in capabilities across the Digital Five Forces, and it continues to build Intellectual Properties in these fields as well. TCS has increased patent filings significantly, so far 1,746 patent applications have been filed, of which 114 have been granted. This will ensure that TCS continues to remain relevant to the customers. Strengths in these areas should be a major driver of revenue and profitability in the future.”

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