UBS Upgrades TCS To Buy; Expects IT Firm To Outperform Peers

UBS says TCS is likely to outperform its large IT services peers in revenue growth in FY25
UBS Upgrades TCS To Buy; Expects IT Firm To Outperform Peers

Global brokerage UBS Securities upgraded Indian IT services provider Tata Consultancy Services Ltd. to Buy from Neutral and lifted its target 4,700 rupees from 4,050 rupees per share.

TCS rose 1.8% to 4,072.50 rupees in early Mumbai trading today on the National Stock Exchange.

“We expect TCS to outperform its peers (i.e., large IT services firms) in revenue growth in FY25,” UBS said in an investor note.

TCS is likely to lead its peers in revenue growth by around 100-150 basis points (bp) along with improvement in margins in FY25, it added.

“We believe the market is not pricing this in, given a divided consensus and the stock remaining at the lower end of its long-term trading premium versus peers,” UBS said.

The brokerage said it sees enough drivers to believe TCS can deliver industry-leading growth and margins among peers in FY25.

These include:

  • Rramp-up of large deals such as Bharat Sanchar Nigam Ltd. (BSNL), NEST and Aviva,

  • Revival in the banking, financial services and insurance (BFSI) segment,

  • Revival in cloud migration projects, and

  • Continued managed services demand strength at industry level.

On the margin front, the brokerage expects a sharp fall in attrition to aid in gross margins with some lag, a potential 200bp additional improvement in utilization, and scope for sub-contracting cost reductions.

“Our two-factor regression model suggests gross margin can expand by more than 100bp in the next four to six quarters,” UBS said. The brokerage lifted its FY25/FY26 EPS estimates 3%/9%.

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