TCS - Gladiator Stocks - ICICI Securities

Strategy

Buy TCS in the range of Rs. 2190.00-2250.00 for target price of Rs. 2550.00 with a stop loss of Rs. 2060.00. Time Frame: Six months

Technical View

IT sector has been one of the major outperformer in the last four months pullback since market bottoming out in March 2020. IT major TCS has lead the way and is currently placed at the cusp of breakout above the last two year almost identical highs (Rs. 2275 and 2296 respectively). We expect the stock to resolve above the same thus offering fresh entry opportunity.

The entire up move of the last four months is well channelled signalling sustained demand at elevated level. It has recently rebounded taking support at the lower band of the rising channel signalling strength and positive price structure.

We expect the stock to continue with its positive momentum and head towards Rs. 2550 levels in the coming months as it is the 138.2% external retracement of the CY 2020 decline (Rs. 2260-1506) placed at Rs. 2550 levels.

Fundamental View

Tata Consultancy Services (TCS) is an IT service company catering to various segments like Banking & Insurance (~30% of revenues), Communication (~7%), Manufacturing (~10%), Life science & Healthcare (~8%) Technology & Services (~9%), Regional Markets (~20%) and CPG & Retail (~15%). Geographically the company generates ~52% revenues from Americas, 31% from Europe and 17% from Rest of the world.

We expect TCS to report improving growth in coming quarters mainly led by receding challenges on supply side, ramp up of deals, vendor consolidation opportunities and traction in BFSI. The company also expects cloud, customer experience, automation and cyber security related digital technologies to gain traction in long term. We believe TCS could see a decline in FY21E revenues mainly due to a weak first quarter. However, we expect the company to register healthy growth in FY22E mainly led by ramp up of deal pipeline and acceleration in digital technologies.

Company's knack of winning large deals across segments & geographies, strong execution, cost rationalization and client mining capability it has been able to register consistent performance in revenues and margins. The company has best in class margins (~27% EBITDA margins) and RoCE (~44%). We expect the company to continue delivering industry leading growth and higher return ratios in coming years. Further, the company has maintained healthy cash flow generation and has a consistent dividend pay-out policy. Hence, we remain positive on the stock from a long-term perspective.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_GladiatorStocks_TCS_Jul20.pdf

Shares of TATA CONSULTANCY SERVICES LTD. was last trading in BSE at Rs.2233.55 as compared to the previous close of Rs. 2171.7. The total number of shares traded during the day was 141346 in over 9260 trades.

The stock hit an intraday high of Rs. 2259.15 and intraday low of 2183. The net turnover during the day was Rs. 314899519.

Source : Equity Bulls

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