TCS shares: Motilal Oswal sees ₹3950 target in 2023. Should you buy?

“We believe TCS, among our IT services coverage, is best positioned to ride out the near-term moderation in technology spending, on account of macroeconomic stress in developed economies. With tech spending shifting toward cost efficiency (vs focus on transformation over the last two years), TCS revenue growth is expected to outperform its peers (FY24 at 9.2% YoY CC in USD vs large cap coverage median of 8.5% YoY) on account of its industry leadership in cost optimization and strong order book,” the brokerage said.

Motilal Oswal research report published on 31st January 2023 says that TCS’s better operational efficiencies is expected to drive up its profitability, leading to 20% YoY INR PAT growth in a tough year.

On TCS margins, the brokerage report says, “With easing supply-side pressure and front loading of cost, we expect TCS to improve its EBIT margin by 135bp over FY23-25 after declining 170bp over the previous two years. While cost efficiency project usually command lower pricing, TCS should benefit from the addition of a large pool of freshers (155k over the last 1.5 years, 30% of FY21 workforce), improved utilization and strong operating leverage. More importantly, it has best in class track record of managing cost efficiency work and strong execution capabilities, which should help the company generate better profitability. We expect the company to register FY24/FY25 EBIT margin of 24.8/25.6%, respectively.”

On its suggestion to positional investors in regard to TCS shares, Motilal Oswal research report says, “We maintain our positive stance on TCS. Our TP (Target Price) of ₹3,950 implies 29x FY24E/25xFY25 EPS, with a 18% upside potential. We reiterate our Buy rating.”

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