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The shares of Tata Consultancy Services ended 6 per cent lower on Monday after the company’s Q2 FY 2022 results missed market expectations.
TCS closed at ₹3,686.50 on the BSE, down ₹248.80 or 6.32 per cent. It had opened at ₹3,797.00 as against the previous close of ₹3,935.30. It hit an intraday high of ₹3,797 and a low of ₹3,660.
On the NSE, it closed at ₹3,687.95, down ₹247.70 or 6.29 per cent. Its M-cap stood at ₹13,63,655.29 lakh crore on the BSE at closing.
The Global IT services major had announced that its net profit for the quarter ended September 2021 increased 28.75 per cent to ₹9,624 crore compared to ₹7,475 in the same quarter last year.
On a sequential basis, profits rose 6.84 per cent over the first quarter. Revenue from operations grew 16.77 per cent YoY to ₹46,867 crore (₹40,135 crore). On a quarterly basis, the revenue rose 2.9 per cent.
The quarter also showed strong client addition with five added in the $100-million-plus category, taking the total to 54 and 17 in the $50-million-plus set, taking the total to 114. It has approved a second interim dividend of ₹7 per share.
Brokerages neutral
Brokerages remain neutral on the stock as operating performance and rich valuations are likely to weigh on stock performance.
Motlal Oswal Research maintained a ‘Neutral’ rating on the stock at a target price of ₹3,770, with a 4 per cent downside. The target price implies a 31x FY23E EPS.
“IT Services has entered into a technology upcycle, with cloud migration and digital transformation-led deals coming to the market. 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,” it said in a note.
“We remain 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,” it said.
IDBI Capital has recommended a Hold rating on the stock, with a target price of ₹4,072 based on PER of 32x FY23E. Emkay Global also maintained a Hold rating on the stock at a target price of ₹3700.
Axis Securities Ltd also recommended a Hold rating on the stock and assigned a 30x P/E multiple to its FY24E earnings of ₹135.2/share to arrive at a target price of ₹4,100 per share, implying an upside of 4 per cent from the current market price.
HDFC Securities, however, had a positive outlook with an Add rating on TCS “despite a slight miss” based on revenue and margin, supported by healthy deal wins at a target price of ₹4,180 per share.
YES Securities maintained a Buy rating at a target price of ₹4,395.
“Overall, we remain positive on the stock as the robust demand environment would help it to report double digit revenue growth for FY22/FY23. Deal booking remains strong and would help to sustain the growth momentum. There are near term margin headwinds in this supply constrained environment. However, we expect it to maintain a stable margin of ~26 per cent aided by positive operating leverage,” it said.
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