After India's IT bellwether Tata Consultancy Services (TCS), on October 11, posted mixed September quarter (Q2FY24) earnings, top brokerages largely maintained their stance on the stock. Bernstein retained an ‘outperform’ rating on the largest domestic software services company, while Morgan Stanley maintained an ‘equal weight’ stance on the counter.
TCS shares opened lower following their earnings announcement. At 10.36 am, the stock was trading at Rs 3,549.55 on NSE, down 1.67%. The company announced its Q2 results after market hours yesterday.
TCS on Wednesday reported a 9% year-on-year (YoY) growth in consolidated net profit for the September quarter to Rs 11,342 crore. Consolidated revenue grew nearly 8% YoY to Rs 59,692 crore.
On a sequential basis, the growth was muted, with revenue rising a mere 0.5% and profit up 2.4%.
Here's what brokerages said on the stock post Q2 show:
Nuvama on TCS: Buy | Target: Rs 4,160
- Strong deal flow momentum, despite the uncertainty in decision-making process, reinforces the brokerage's positive stance on the sector.
- Expect revenue growth to follow soon—over the coming quarters.
Motilal Oswal on TCS: Buy | Target: Rs 4,060
- Motilal says the weakness in revenue growth was majorly led by continued slowdown in discretionary spends and clients reprioritising cost optimisation projects.
- Given its size, order book and exposure to long-duration orders and portfolio, the brokerage said that TCS is well-positioned to withstand the weakening macro environment and ride on the anticipated industry growth.
Emkay Global on TCS: Hold | Target: Rs 3,550
- TCS’s Q2 operating performance was a mixed bag, with a miss on revenue and a beat on EBITM expectations.
- Revenue declined 0.2% QoQ to $7.21 billion (0.1% CC), due to persistent softness in discretionary spending and continued focus on optimization in spending.
- According to the brokerage, the management refrained from providing any timeline of recovery yet again, citing macro uncertainties.
Goldman Sachs on TCS: Buy | Target: Rs 4,020
- Revenue growth is below GS estimate of over 1% quarter-on-quarter (QoQ)
- 1% QoQ decline in headcount suggests weak near-term revenue outlook
- Order book remains strong, over 31% YoY and rolling two-quarter growth
- Orderbook reflecting improving revenue trajectory from H2FY24
HSBC on TCS: Hold | Target: Rs 3,625
- Deal Wins were strong, revenues missed estimate in Q2
- Revenue missed estimate as discretionary and scope expansion work was weak
- H2 FY24 unlikely to see a v-shaped recovery
- Bulk of rampup benefit of large deals will only be visible in FY25
- Do not see much room for upside on TCS stock
Morgan Stanley on TCS: Equalweight | Target: Rs 3,590
- Q2 shows no respite from macro headwinds
- TCS missed on revenue despite improving order booking trends
- Good execution on orderbook is not translating into revenue optimism
- Good execution on orderbook has driven cuts to revenue assumptions
- EPS cuts are limited due to better-than-expected performance on margin
Nomura on TCS: Reduce | Target: Rs 3,030
- Unlikely to hit 25% EBIT margin in FY24, in our view
- Orderbook is holding up, but near-term visibility remains low
- Weak headcount addition persists, as attrition continues to moderate
Bernstein on TCS: Outperform | Target: Rs 3,950
- Delivered a mixed quarter with positives on margins (54 bps beat). Deal wins set platform for FY25
- Strong order book ($11.2 billion) and a large buyback ($2.2 billion). Buyback should provide near-term stock support.
- Client optimisations due to macro uncertainty led to sharp revenue miss
Citi on TCS: Sell | Target: Rs 3,170
- Delivered a weak Q2 on growth. Last three quarters have been largely flattish QoQ
- Lower CC revenue growth estimate to 3.5% YoY for FY24
- Headcount reduction of approximately 6,000 (down 1% YoY) would have aided
- Stock trades at 27 times 1-year forward consensus EPS
(Edited by : C H Unnikrishnan)
First Published: Oct 12, 2023 11:00 AM IST
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