Tata Consultancy Services (TCS) on October 8 reported a consolidated net profit of Rs 9,624 crore for the quarter ended September 2021 (Q2FY22), registering a 14.1 percent year-on-year (YoY) growth.
TCS posted consolidated revenue during the July-September period at Rs 46,867 crore, up 16.8 percent over a year-ago quarter.
The revenue growth in constant currency came in at 15.5 percent YoY.
However, the numbers were largely below the street estimates. A CNBC-TV18 poll of analysts had estimated profit at Rs 9,731 crore on revenue of Rs 47,466 crore for the quarter under review.
At the operating level, EBIT (earnings before interest and tax) margin at 25.60 percent for the September 2021 quarter also missed CNBC-TV18 poll estimates of 26.05 percent. Margin grew by 0.1 percent sequentially, but declined 0.6 percent YoY.
Here is what brokerages have to say about the stock and the company after Q2FY22 results:
Motilal Oswal
Given TCS’ size, capabilities, and portfolio stretch, it is rightly positioned to leverage expected industry growth.
The company has consistently maintained its market leadership and shown best in-class execution. This gives the company continued room to maintain its industry-leading margin and demonstrate industry-leading return ratios.
Motilal Oswal remains positive on the company, given its strong growth outlook. But high valuations leave limited room for disappointment.
A miss on estimates in 2QFY22, coupled with a soft margin outlook, can result in near term pressure on the stock.
The target price of Rs 3,770 per share implies 31x FY23E EPS and maintained neutral rating.
Sharekhan
The broking house broadly maintained the estimates for FY2023 and FY2024 because of strong broad-based demand, resilient operating performance, strong deal wins and healthy deal pipeline.
It believes TCS is well positioned to capture growth and transformation opportunities given its competencies across technologies and verticals, strong contextual knowledge, excellent product and platform portfolio and solid execution capabilities.
It expects the company’s US Dollar revenue and earnings to clock an 11/14 percent CAGR over FY2022-24E.
Any correction in stock price would provide a good investment opportunity for long-term investors. Hence, maintain a buy rating on TCS with a revised price target of Rs 4,400.
IDBI Capital
The research firm fine-tunes its forecast and raises the EBIT margin by 30bps/20bps to 25.8/25.9 percent resulting in an increase in EPS by 2.6/5.1 percent to Rs 106/121 for FY22E/FY23E.
It recommends holding with a target price of Rs 4,072 (versus Rs 3,498) based on PER of 32x FY23E.
Emkay
Broking house cut FY22/23/24 EPS estimates by 1.2/0.3/0.3 percent after factoring in the Q2 performance miss.
The operating performance miss for the second consecutive quarter and rich valuations will weigh on stock performance.
The research house maintained a hold with a target price of Rs 3,700 (28x Sep'23E EPS).
KRChoksey
It expects strong deal momentum across verticals, ease in travel restrictions and continued investments in newer technologies such as product & platform which will help maintain the growth momentum in the medium term future.
It is assigning a P/E multiple of 32x to the FY24 estimated EPS of Rs 135 to arrive at a target price of Rs 4,256 per share (earlier target of Rs 4,053), an upside of 8 percent over the CMP. Accordingly, it reiterates an accumulate rating to the stock.
HDFC Securities
TCS continues to witness strength in its core business segment and has bagged higher mid-sized deals spread across verticals.
The ongoing supply side crunch (attrition increased to 11.9 percent, yet industry-best) and return of discretionary spend will limit margin expansion despite operating leverage and higher pricing.
Our target price of Rs 4,180 is based on 32x Dec-23E EPS with EPS CAGR of 14 percent over FY21-24E. Maintain Add rating.
Prabhudas Lilladher
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.
TCS’ well managed supply side engine is an ace in the current battle for talent. It believes that leaders have a far broader set of capabilities and they end up addressing a larger portion of the IT spending pool, which helps them to grow at a solid rate on a high base.
It projects revenue growth of 16/13.7 percent dollar terms for FY22/23E respectively. We arrive at a DCF based target price of Rs 4,113 (earlier: Rs 3,968).
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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