NEW DELHI: TCS is likely to lead its peers in revenue growth by 100-150 bp along with improvement in margins in FY25, foreign brokerage UBS said in a report.
“We believe the market is not pricing this in, given a divided consensus and the stock remaining at the lower end of its long-term trading premium vs peers," UBS said as it upgraded TCS.
“We see enough drivers to believe TCS can deliver industry-leading growth and margins among peers in FY25," UBS said.
These include ramp-up of large deals, revival in the BFSI segment, revival in cloud migration projects; and continued managed services demand strength at industry level.
“On the margin front, we expect a sharp fall in attrition to aid in gross margins with some lag, a potential 200 bp additional improvement in utilisation, and scope for subcontracting cost reductions. Our two-factor regression model suggests gross margin can expand by more than 100 bp in the next four to six quarters," UBS said.
UBS has lifted FY25/26 EPS estimates 3 per cent/9 per cent and upgrade TCS valuing the company at 28x PE (earlier 26x) on FY26E EPS, which is close to the current multiple.
TCS' current multiple premium over peers is below the historical average, and any outperformance makes the case for a re-rating, providing comfort in using the current multiple, the brokerage said.
TCS shares gained 2.5 per cent on Tuesday on the BSE to close at Rs 4,102.