Tata Consultancy Services (TCS) share price jumped on Tuesday after the IT giant reported a 7.4 per cent on-year rise in consolidated net profit at Rs 9,926 crore, meeting street estimates. TCS shares rose nearly 1 per cent to touch intraday high of Rs 3,723. Benchmark Sensex was down 500 points or 1.00 per cent. The in-line quarterly earnings, record order book and the management commentary impressed foreign as well as domestic brokerages. But that could not trigger fresh rating upgrades, as margin volatility remains a big overhang.
TCS stock has tumbled 3 per cent so far this year. However, going forward, the stock is expected to rally up to 14 per cent, according to analysts. “TCS is well poised to benefit from strong demand and growing digital transformation opportunities,” said Emkay Global.
Stock Talk: Should you buy, hold, or sell TCS shares?
Emkay Global: Buy
Target price: Rs 4,000; Upside 8%
TCS’ Q4FY22 operating performance was broadly in line with Emkay Global’s expectations. Revenue grew by 14.3% on-year in CC terms. EBITM remained flat QoQ at 25% due to supply side challenges, partly offset by operating efficiencies and favorable currency movement. “We largely retain our EPS estimates for FY23/FY24 (<1% change) after factoring in FY22 performance. TCS is well poised to benefit from strong demand and growing digital transformation opportunities, although salary inflation and potential slowdown in Europe remain near-term concerns,” the brokerage said. It retained its Buy call on TCS stock with a target price of Rs 4,000 at 28x Mar’24E EPS.
HDFC Securities: Add
Target price: Rs 4,210; Upside: 14%
HDFC Securities in its institutional research report stated that TCS’ performance highlight was its strong deal bookings of $11.3 billion, supported by mega deals of around $1.8 billion TCV (~0.5/0.8% revenue impact for FY23/24E). “While revenue and margin for Q4FY22 came in-line, key positives for TCS include market share gains compared to Accenture outsourcing, Calibrated focus on building upstream/consulting with org. structure changes to improve client mining, Q1FY23E growth rebound in BFSI vertical will be supported by strong bookings of $3.2bn, and Demand buoyancy is reflected in TCS’ headcount addition (net),” the report said. TCS’ medium term drivers such as prioritization of tech budgets, strong execution framework (including high retention) and services breadth including industry platforms remain intact, it added. HDFC Securities has an ADD rating on the stock with a target price of Rs 4,210.
IDBI Capital: Hold
Target price: Rs 4,035; Upside 9%
TCS reported decent revenue growth in Q4FY22 and was broadly in line with IDBI Capital’s estimates. “We believe the demand continues to be robust, led by cloud migration and ancillary technologies. In addition, the company is seeing healthy deal wins and higher deal TCV. However, geopolitical tensions in Europe prompt us to revise our revenue estimates downwards. We now expect revenue CAGR of 10.8% over FY22-FY24,” it said. In terms of margins, the brokerage expects supply side challenges, wage hikes, higher travel and facility cost to impact near term margins. “Hence, we maintain our HOLD rating on the stock with a revised target price of Rs 4,035 (based on PER of 30x on FY24E EPS).” it added.
Kotak Securities: Add
Fair Value: Rs 4,000
TCS reported a good quarter and healthy client metrics. TCV of deals showed a much-needed improvement, while recruitment was strong. “Margin headwinds will stay in FY2023E for the industry although TCS is much better-positioned to navigate the challenges. Underlying demand is strong even as focus will stay on demand from Europe,” the brokerage said. Kotak Securities’ TCS EPS estimates are unchanged. However, FV has been reduced marginally to Rs 4,000. The brokerage retained a constructive view on the stock.
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