Tata Consultancy Services Sees Weaker Results Than We Expected; Raising FVE to INR 2,700

Wide-moat Tata Consulting Services reported fourth-quarter results that missed our expectations on the top and bottom line. Along with other IT services firms, Tata is continuing to see oversubscribed demand for its offerings, especially around digital transformation, as the talent pool remains scarce in the industry. Nonetheless, we continue to believe that these are temporary strains for the company--and Tata will ease its dependency on headcount as automation becomes more pervasive in its offerings. While IT services attrition increased for Tata on an LTM basis, we were encouraged to learn that quarterly annualized attrition is plateauing, which we believe also signals the shorter-term nature of talent supply obstacles. We've slightly upped our revenue and margin expectations for Tata within our five-year forecast, while rolling our financial model ahead, leading us to increase our fair value estimate for Tata to INR 2,700 from INR 2,500. We still view Tata as overvalued, as the company trades near INR 3,700 upon results.