Shares of TCS gained 2 percent intraday on Tuesday. CLSA has reiterated buy rating on the stock with target price at Rs 2850. The brokerage firms is optimistic that TCS is likely to remain at the upper end of industry growth due to structural strengths while improving capital allocation through regular dividend and higher dividend payouts make it attractive.
After meeting TCS management, CLSA is bullish on the stock but feels capital allocation could be reassessed this year in favour of regular and higher dividend payouts.
“Industry consolidation towards scale vendors, rising tech intensity across businesses and increasing TCS’ participation across geographical and vertical markets remain the cornerstones of its long-term strategy. A margin of 26-28% remains defensible in the medium term even as the band could be missed in FY17,” it says in a note.
As per CLSA, TCS can ride on three key drivers for long term. Firstly, the IT market structure continues to consolidate in favour of scale vendors such as TCS. Secondly, technology intensity in enterprises continues to rise with adoption of digital across front/middle/back offices across industries. This should fundamentally drive more rather than less work. Thirdly, TCS continues to aggressively expand its long-term total addressable market (TAM) in geographies (Japan, LatAm, APAC, Europe) and underpenetrated verticals.
At 14:19 hrs TCS was quoting at Rs 2,433.40, up Rs 32.55, or 1.36 percent on the BSE.
Posted by Nasrin Sultana
Follow @ NasrinzStory