TCS share price rose half a per cent to Rs 3140 on NSE on Tuesday after the company declared its September quarter earnings with profitability surpassing the Rs 10,000-crore mark. Tata Consultancy Services’ Q2 results beat street expectations on most counts, with net profit growing over 8 per cent, revenue rising over 18 per cent, attrition peaking, margins coming in above estimates, strong demand, and a robust order book. Further, the company also declared a second interim dividend of Rs 8 per share for its shareholders. TCS bagged new deals worth $8.1 billion in Q2 compared with $8.2 billion in Q1. So far this year, TCS shares have plunged over 18 per cent. However, analysts remain bullish, and see up to 30 per cent upside going forward.
Should you buy, hold or sell TCS shares?
Reliance Securities: Sell
“We believe that IT Services would not remain immune to worsening global macros in terms of rising inflation, economic slowdown, currency headwinds and likely cut on spending. Revenue growth would taper down to low double-digit in FY24E, while on-quarter decline in order book, clear lower employee addition, higher attrition and lower pricing power ahead would lead to valuation multiple contraction close to its historical averages,” said Reliance Securities. The brokerage has assigned a ‘Sell’ rating on TCS.
Analysts at Sharekhan believe that increasing global macro uncertainties remain an overhang for demand visibility for the IT sector and would also restrict any meaningful valuation re-rating in near term. However, the management remains watchful of the macro situation and does not see any material change in the client behavior. “We are skeptical on the environment owing to the deteriorating situation, especially in Europe and the UK. Nevertheless, we remain confident on the TCS capabilities to withstand the macro challenges and emerge stronger. We continue to prefer TCS for long-term considering its best-in-class capabilities and execution, full-service model and excellent payout ratios,” they said. The brokerage maintains a ‘buy’ rating on TCS with an unchanged target price of Rs 3,650.
Motilal Oswal: Buy
According to the brokerage firm, given TCS’s size, order book, and exposure to long duration orders, and portfolio, it is well positioned to withstand the weakening macro environment and ride on the anticipated industry growth. “Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios. We maintain our positive stance on TCS,” it said. Motilal Oswal has a ‘buy’ rating on the IT stock with a target price of Rs 3,580, implying a 15% upside potential.
Nuvama Institutional Equities: Buy
“Demand environment continues to remain healthy despite macro uncertainties. We expect margins to improve through the course of the year. We believe strong demand and pipeline are likely to keep up earnings growth in coming quarters,” the research firm said. It maintains a ‘buy’ rating on TCS shares with an unchanged target price of Rs 4,106 (32x Q4FY24E).
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