TCS after Rs 10,465-crore profit in Q2: Should you buy, sell or hold the stock?

TCS said the revenue from operations grew by 18.01 percent on-year to Rs 55,309 crore, compared to Rs 46,867 crore in the same quarter last year. Sequentially, revenue grew 4.83 percent.

Also Read | TCS to give 70% of employees full variable pay for Q2FY23

In constant currency terms, revenue growth was 15.4 percent YoY. The company said its operating margin came in at 24 percent, contracting 1.6 percent YoY. The company’s order book for the quarter was at $8.1 billion. Net cash from operations came in at Rs 10,675 crore or 102.3 percent of net income, the company said.

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Here is what brokerages have to say about stock and the company after its September quarter earnings

Macquarie

The brokerage house has kept the 'outperform' rating on the stock with a target Rs 4,150 per share as the Q2FY23 beat on EBIT margin, while PAT and revenue was miss.

Continue to prefer TCS to Infosys, as both outperform, said Broking house.

Also Raed | TCS earnings for Q2 beat on all counts, profitability shoots past Rs 10,000 crore

It expects the company to widen margin gap with Infosys given headcount addition, reported CNBC-TV18.

Nomura

Research house Nomura has maintained 'reduce' rating on the stock with a target Rs 2,620 per share.

There was a modest beat in Q2, while no cheer on growth outlook. The orderbook is flattening, said Nomura.

The broking house feels that the longer cycle on clients decision making to weigh on growth.

The margin improvement was on expected lines, easing supply side to aid margin. The growth is to lag behind Infosys, no meaningful change to earnings, reported CNBC-TV18.

Bernstein

Research firm Bernstein has kept 'outperform' rating on the stock with a target Rs 3,850 per share. The company has delivered a revenue beat & in-line margin.

The reported revenue was up 4.0 percent, QoQ, constant currency was at 15.4 percent YoY, at USD 6,877 million, while EBIT margin was at 24 percent, up 90 bps QoQ.

The orderbook was healthy of $8.1 billion. The continental Europe business improved to 14.1 percent YoY versus 12.1 percent in Q1.

The commentary on deal closure/pipeline was constructive, while commentary remains watchful on macro risks, reported CNBC-TV18.

Jefferies

Broking firm Jefferies has maintained the 'hold' rating on the stock and raised the target to Rs 3,180 per share as the Q2 is ahead with revenues, margin and profits beating estimates.

The deal wins at $8.1 billion was steady on-year. The high subcontracting with lower net hiring reflects the management’s caution.

Jefferies raises FY23-25 estimates by 2-5 percent to factor in the rupee depreciation against the dollar. It expect TCS to deliver 12 percent EPS CAGR over FY22-24.

The company’s premium valuations may limit upside, reported CNBC-TV18.

CLSA

Brokerage house CLSA has kept the 'outperform' rating on the stock with a target Rs 3,450 per share as the Q2 was in-line with estimates, with near-term revenue outlook intact & supply pressure abating.

However, long-term demand outlook does soften, but not alarming. Increased confidence in margin management, said CLSA.

The company’s ability to structure large cost-takeout deals should help gain market share, reported CNBC-TV18.

Credit Suisse

Research firm Credit Suisse has kept its 'neutral' rating on the stock with a target Rs 3,300 per share.

There was a strong revenue growth & margin improvement in Q2, however, FY24 demand scenario is still uncertain.

The growth was led by BFSI, 4 percent CC revenue growth QoQ & retail growth of +4.1 percent. Also, the UK/Europe business surprised positively & US remained steady.

The deal momentum was also steady, TCV was flat QoQ at USD 8.1 billion. The margin was benefitted from operational efficiencies and currency.

Credit Suisse raises FY23-FY25E EPS by 2-4 percent to a/c for better margin & currency benefits, reported CNBC-TV18.

Citi

Brokerage house Citi has retained the 'sell' rating on the stock and raised the target price to Rs 2,900 per share as good Q2 and UK/India drives the beat.

The deal TCV at USD 8.1 billion versus past 4 quarter average of USD 8.7 billion, up 7 percent, YoY. The demand sustainability is a key, management commentary was mixed, reported CNBC-TV18.

Sharekhan

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. Though 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 deteriorating situation especially in the Europe/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. Hence, we maintain a 'buy' on TCS with an unchanged Price Target of Rs 3,650.

Motilal Oswal 

Increase in interest rates, slow economic growth, and elevated geo-political tensions have adversely impacted the macro environment and raised concerns over IT spends.

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. Our target price of Rs 3,580 implies 27x FY24E EPS, with a 15 percent upside potential. We reiterate our 'buy' rating," said the brokerage house.

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