Shares of Tata Consultancy Services (TCS) fell 1.67% to ₹3,068.95 on BSE on October 11, a day after the company released its fiscal September quarter (Q2FY23) scorecard.
TCS' Q2FY23 consolidated profit rose 8.4% year-on-year (YoY) to ₹10,431 crore, beating analysts’ estimates. Revenue from operations for the quarter rose 18% YoY to ₹55,309 crore.
The Q2 numbers of TCS fetched mixed reviews from analysts and brokerage firms. Most of them retained their previous ratings on the stock.
Domestic brokerages
Among the domestic brokerages, Motilal Oswal Financial Services has a 'buy' call on the stock with a target price of ₹3,580.
Motilal Oswal said 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 ₹3,580 implies 27 times FY24E EPS, with a 15% upside potential," said Motilal Oswal.
Nuvama Wealth Management (formerly Edelweiss Securities) maintained a 'buy' call on the stocks with a target price of ₹4,106.
Nuvama highlighted that TCS' demand environment remains strong. "TCS is seeing some hesitation in Europe on the commitment to long-term deals, although it is not reflecting in demand for now. US demand remains strong. Cloud remains a key investment area," said Nuvama.
"Demand environment continues to remain healthy despite macro uncertainties. We expect margins to improve over the course of the year. We believe a strong demand pipeline is likely to keep up earnings growth in the coming quarters," it said.
HDFC Securities has an 'add' call on TCS with a target price of ₹3,660 as it said TCS posted higher sequential revenue growth (in line in USD terms) and better margins in Q2FY23.
"TCS’ superior execution metrics, full stack portfolio (better deal count across verticals) and industry drivers (uptick in E&U and travel and hospitality sub-verticals) will support growth," HDFC Securities said.
Brokerage firm ICICI Securities found TCS' Q2FY23 numbers on expected lines and maintained a 'hold' call with a target price of ₹3,191.
"We slightly decreased our dollar revenue estimates, but our earnings per share estimates increase due to forex changes (increased dollar/rupee assumption from 80 to 82 for the second half of FY23 and FY24). We forecast revenue growth of 7.6% and 6.4% for FY23E and FY24E, respectively," ICICI Securities said.
"TCS has better-than-peers supply-side management, breadth of capabilities and deep domain expertise. While demand may slow down in future, TCS will likely gain a share from peers. It will also most likely gain in vendor consolidation exercise," said ICICI Securities.
Global brokerages
Among the global brokerages, as reported by CNBC-TV18, Macquarie has an 'outperform' call on TCS with a target price of ₹4,150. Macquarie said the company has "put to bed concerns that margin issue could become structural."
CLSA also maintained an 'outperform' call on TCS with a target price of ₹3,450. As per CNBC-TV18, CLSA said the Q2 numbers of the company were in-line with expectations.
As reported by CNBC-TV18, CLSA believes TCS' near-term revenue outlook is intact while supply pressure is abating. The long-term demand outlook does soften but it is not alarming.
Bernstein also has an 'outperform' rating on TCS with a target price of ₹3,850 as it said management commentary on deal closure and the pipeline was constructive, reported CNBC-TV18.
Credit Suisse has maintained a 'hold' call on the stock with a target price of ₹3,300. As per CNBC-TV18, the global financial firm highlighted TCS' strong revenue growth and margin improvement in Q2FY23.
However, it said that the demand scenario for FY24 is still uncertain. Credit Suisse has raised FY23-FY25E EPS (earnings per share) by 2-4%, CNBC-TV18 reported.
Jefferies has a 'hold' rating on TCS with a target price of ₹3,180, CNBC-TV18 reported. Jefferies has raised FY23-25 estimates by 2-5% to factor in rupee depreciation. It expects TCS to deliver a 12% EPS CAGR over FY22-24, reported CNBC-TV18.
Nomura has a 'reduce' call on the TCS stock with a target price of ₹2,620, reported CNBC-TV18. It highlighted that the company's order book is flattening. A longer cycle of clients' decision-making will weigh on growth, Nomura said.
Citi has maintained a 'sell' call on TCS with a target price of ₹2,900 even as it said the Q2 numbers were good, reported CNBC-TV18.
According to a MintGenie poll, an average of 42 analysts have a ‘hold’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.
