TCS share price soared over 2 per cent to Rs 3,944.40 apiece on BSE on Thursday, a day after the IT bellwether posted a 12.36 per cent on-year rise in the consolidated net profit to Rs 9,769 crore for the third quarter ended December 31, 2021. Tata Consultancy Services also announced an interim dividend of Rs 7 per equity share, and approved a share buyback worth Rs 18,000 crore at Rs 4,500 per share. TCS stock is now near its 52-week high of Rs 3,990.
Brokerage firms have recommended buying TCS stock after the October-December financial results, with up to 30 per cent potential rally from the current levels. TCS’ revenue performance was in line with estimates, but the margin was a miss, said analysts. Analysts also believe that continued hiring with the highest ever net headcount addition in Q3 alone, indicates sustainability of a strong demand environment.
Should you buy TCS stock post Q3 earnings?
Prabhudas Lilladher: Buy
Target price: Rs 4,468
The research firm has given a buy rating to the stock with a target price of Rs 4,468 apiece, an up move of 15.75 per cent from last closing price. It believes TCS’ low attrition (as compared to peers) is a competitive advantage in the current environment where growth is constrained more by supply rather than demand. “We believe TCS can easily sustain ~26% EBIT margin in FY23 despite return of discretionary expenses and supply side cost pressures. As supply side pressures ease off in FY23, there is scope for margin expansion led by reducing sub-contracting costs, improved pricing, pyramid optimization, best-in-class supply side engine and leverage from revenue growth,” it said.
Kotak Institutional Equities: Add
The research firm has maintained its add rating to the stock on solid revenue growth of 4% sequentially, ahead of its estimates. It believes that TCS is better positioned than peers to manage margin headwinds, as the company will be at the forefront of driving digital transformation for clients. Kotak has raised TCS’ FY2022-24 revenue estimates by 1-3% and EPS estimates by 1-3%. “TCS has better-than-peers supply-side management, which will allow it to grow profitably,” the research firm said.
Motilal Oswal Financial Services: Buy
Target price: Rs 4,250
The research brokerage firm sees a 10 per cent upside in the stock with a price target of Rs 4,250 apiece. The firm believes that Tata Consultancy Services has posted robust topline growth in a seasonally weaker quarter. “We expect this performance to alleviate the concerns on its growth potential and the likely drag from growing share of smaller deals in the market,” it said. “Given TCS’ size, capabilities, and portfolio stretch, it is rightly positioned to leverage the anticipated industry growth,” Motilal Oswal Financial Services said in a note.
Edelweiss Research: Buy
Target price: Rs 5,000
The research firm said that TCS’ Q3 profit and margins came in below expectations, while revenue growth was above estimated. It will take TCS share price to jump nearly 30 per cent to hit the target price of Rs 5,000 pinned by the research firm. “TCS delivered strong growth numbers and the overall pipeline remains robust. We believe demand for core transformation remains strong, and this coupled with exemplary execution is likely to drive strong earnings,” it said.
Emkay Financial Services: Buy
Target price: Rs 4,150
The research firm sees a 7.5 per cent jump in the TCS stock post Q3 earnings as revenue growth was above expectations, while margins was a miss. The research firm noted that a strong and sustained demand environment, broad-based growth, healthy deal intake, and traction in cloud, IoT and Digital engineering gave management confidence to sustain a robust revenue growth trajectory. “Management expects that measures taken to manage supply-side challenges may weigh on margins in the near term,” it said.
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