Company Reports

We are raising our fair value estimate for wide-moat Tata Consulting Services to INR 3,050 from INR 2,960 after the firm closed out fiscal 2024 with strong financial results. While customers continue to tighten their fiscal belts during the ongoing period of macrouncertainty, we remain impressed by Tata’s ability to navigate the current macroeconomic environment. Despite our fair value estimate increase and our continued optimism about Tata’s long-term opportunity as a leader in IT services, we view the firm’s shares as overvalued.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company is undergoing headwinds like an industrywide labor shortage, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.

We maintain our INR 2,960 fair value estimate for wide-moat Tata Consulting Services after the firm closed out a muted third quarter with weak customer demand for its solutions amid macroeconomic uncertainty. While we continue to view Tata as a leader in the IT services space with a strong economic moat, we view its shares as being moderately overvalued.

Wide-moat Tata Consulting Services' second-quarter results missed our top- and bottom-line expectations as customers remained conservative on spending amid macroeconomic uncertainty, which we believe will persist over the next few quarters. We are maintaining our INR 2,960 fair value estimate. The shares saw little movement after results, leaving the IT services giant trading in overvalued territory, in our view. Nonetheless, we believe TCS is a high-quality firm with a trio of resilient moat sources.

Wide-moat Tata Consultancy reported first-quarter earnings largely consistent with our expectations. Despite macroeconomic headwinds leading to increased scrutiny in dealmaking, we see a robust sales pipeline (indicated by the quarter’s 1.4 book/bill). As customers turn to Tata for Generative AI integrations, we think Tata’s moat sources, which are partially based on broad domain knowledge, remain strong. We maintain our fair value estimate for Tata Consultancy at INR 2,960. With shares currently trading fairly at INR 3,260, we think shares are overvalued.

Wide-moat Tata Consultancy Services reported fourth-quarter results that came in slightly under our expectations. While delays in projects are causing near-term revenue weakness, we’re encouraged by overall deal activity that we believe bodes well for the long run. We think overall deal health is likely not specific to TCS, as we expect peers Infosys and Wipro are experiencing the same. Leaving earnings results with more reassurance while factoring in uncertainty, we are increasing our fair value estimate for TCS to INR 2,960 from INR 2,840. We view TCS as fairly valued, as the company trades near INR 3,210 upon results.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing entire business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company is undergoing headwinds like an industrywide labor shortage, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.

Wide-moat Tata Consulting Services’ third-quarter results came in nicely, in what typically is a seasonally weak quarter. Profitability expectations were right in line with our estimates, with revenue coming in slightly above our forecast. Nonetheless, the firm is feeling the decision-making lag generally seen across the tech landscape, as total contract value has declined both sequentially and on a year-over-year basis. We are maintaining our fair value estimate of INR 2,840 due to the uncertainty we see ahead. Shares are up 3% upon results, leaving the IT services giant trading in overvalued territory, in our view. Overall, our belief that the stock is overvalued does not undermine that we continue to believe Tata has an exceptionally wide moat—that we trust is behind an uptick in vendor consolidation from which the firm is benefiting. However, we feel that the market is not factoring in risks such as narrowing wage arbitrage to their full extent.

Infosys’ second-quarter results were right in line with our expectations while guidance was mixed, with revenue expectations higher and operating margins lower. Infosys was the last of the big three Indian IT services companies to report earnings, falling in between Wipro’s miss and Tata Consultancy Services’ beat against our former expectations. Although Wipro had the weakest results of the three, we believe its shares are still the most attractive, in 4-star territory. We are maintaining our $17 fair value estimate for narrow-moat Infosys and think the share are fairly valued. We continue to believe that Infosys’ switching costs remain high and stable despite the uncertain macroeconomic environment.

Wide-moat Tata Consulting Services' second-quarter results beat our expectations on the top and bottom lines as the business appeared even more resilient than expected given the weak macroeconomic environment. While TCS said it is experiencing sporadic delays in decision-making on new deals, we find the level of demand for TCS’ digital transformation offerings, especially within North America, promising. Furthermore, we find it comforting that larger transformation projects are being prioritized over smaller ones. We are increasing our fair value estimate to INR 2,840 from INR 2,700 as we factor in the greater strength from the quarter. Shares are up 2% upon results, leaving the IT services giant trading in fairly valued territory, in our view.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing entire business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company is undergoing headwinds like an industrywide labor shortage, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing entire business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company is undergoing headwinds like an industrywide labor shortage, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.

Tata Consultancy Services reported mixed first-quarter results. The top line came in well above our expectations while the bottom line disappointed due to a host of margin pressures. Nonetheless, we continue to believe that the majority of margin pressures will be short-lived, and indicators from TCS support this. TCS estimates that while employee attrition should rise in the second quarter, the metric should moderate after that. We reiterate our INR 2,700 fair value estimate as our confidence remains in the company's wide moat, stemming from a triad of sources: switching costs, intangible assets, and cost advantage. However, as the shares trade near INR 3,266 (down about 1% on results), we believe the market is overly optimistic on margin expansion potential in the long run as the benefits of labor arbitrage ought to moderate. We view the shares as overvalued.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing entire business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company is undergoing headwinds like an industrywide labor shortage, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.

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.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing entire business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company is undergoing headwinds like an industrywide labor shortage, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.

Wide-moat Tata Consultancy Services' third quarter was disappointing, as revenue came in significantly below our expectations and operating margins just under our expectations. Turnover impact proved to be even greater in magnitude than we estimated amid the critical talent shortage. We are maintaining our INR 2,500 fair value estimate. Even with the market up today, TCS shares are down roughly 2% upon the results. Still, this leaves the shares significantly overvalued, in our view. We continue to believe that TCS represents the creme de la creme of Indian IT services firms, as indicated by our wide moat rating, but we think potential investors should hold off on this name at the moment. We believe the market is not correctly factoring in long-term competition from cloud service providers like Amazon Web Services and various country-specific risks.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing entire business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company is undergoing headwinds like an industrywide labor shortage, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.

Wide-moat Tata Consulting Services' second-quarter results were not what we had hoped for, coming in below our expectations on the top and bottom lines. Results were even more surprising as the company reported a stellar talent attrition rate relative to the industry at 11.9% in the quarter, which it claimed was the lowest in the industry. Such attrition comes as a shock as the entire IT services industry has been suffering from a significant talent shortage as the coronavirus has accelerated demand for digital transformation services, with some companies experiencing attrition near 20%. While nice attrition rates were not enough to help drive margins to year-over-year expansion in the quarter, they still represented an uptick from attrition over the past year, and soft results were forgivable, in our book. The company explained that its primary focus over the quarter was to meet demand, rather than expand margins. Ultimately, we are increasing our fair value estimate to INR 2,500 from INR 2,000 as we factor in a lower cost of equity for this high-quality name. Nonetheless, shares are up 1% upon results, leaving the IT services giant trading in overvalued territory, in our view. We continue to consider much of the IT services industry as overvalued.

Tata Consultancy Services is a leading global IT services provider, providing the typical menu of offerings--from software implementation to digital transformation consulting to servicing entire business operations teams. Unlike most of its peers, which earn a narrow moat, in our view, we think Tata merits a wide economic moat, as we believe the company benefits from switching costs and intangible assets, similar to other peers in the industry, as well as cost advantage. While the company will likely struggle amid the coronavirus pandemic, we think that the company’s stable moat trend will stay secure. Meanwhile, forays into the higher-value realm of industrials engineering will help ensure Tata is an above-average beneficiary of substantial growth trends within the IT services industry at large.