Shares of Tata Consultancy Services (TCS) slipped into red after a volatile start to the day, and were declined over 2 per cent at Rs 3,054.75 on the BSE. The move comes after the IT major beat estimates on profit and growth front, in the second quarter of financial year 2022-23 (Q2FY23), and continues to see strong demand for its services.
Earlier this morning, the stock hit a high of Rs 3,144.55. At 10:50 AM, the stock traded 1.6 per cent lower at Rs 3,072. In comparison, the S&P BSE Sensex was down 0.44 per cent at 57,736.
The IT major reported net profit of Rs 10,431 crore, up 8.4 per cent year-on-year (YoY) and 10 per cent quarter-on-quarter (QoQ). Buoyed by good performance across geographies and verticals, the company saw revenue growth of 18 per cent YoY and 4.8 per cent QoQ to Rs 55,309 crore. CLICK HERE FOR FULL REPORT
Meanwhile, the total contract value (TCV) of TCS order book was $8.1 billion ( up 7 per cent YoY) in Q2FY23, with a book-to-bill ratio of 1.18x. While there was no mega deal (>$ 500 million), the company had few $400 million deals, and most were small and mid-sized deals.
TCS indicated that the clients took longer than usual to close large deals given macro uncertainty, which drove lower proportion of qualified deals in the overall pipeline.
On the other hand, analysts at Nomura said that there is higher uncertainty in Europe due to energy security issue in the upcoming winter. The management also noted that the clients were taking measures like scenario planning due to the slowdown.
“We expect TCS to continue to lag behind Infosys on revenue growth in FY23-24F (continuing from the FY20-22 period). We keep our earnings estimates and target price of Rs 2,620 unchanged, at 21x FY24F EPS of Rs 125,” the brokerage firm said.
Besides, analysts at Jefferies said that the second quarter results of TCS were ahead of estimates, as revenues, margins and profits were above projections. The $8.1 billion deal wins in the US markets were steady YoY, but high subcontracting with lower net hiring reflected management’s caution amidst an uncertain macro, said analysts.
“TCS’ higher reliance on subcontracting along with lower net hiring (8-quarter low) reflects its caution amidst uncertain macro environment. We raise our FY23-25 earnings estimates by up 2-5 per cent due to revised dollar versus rupee assumptions and expect TCS to deliver 12 per cent earnings CAGR over FY22-24. While TCS would be better placed in a recessionary environment, its rich valuations will likely weigh on stock performance,” the brokerage firm added.