Analyst Note| Julie Bhusal Sharma |
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.