11 Jul , 2022 By : Monika Singh
TCS share price tumbled on Monday morning as investors reacted to the IT major’s April-June quarterly performance. TCS stock price dived 4.7% to hit Rs 3,111 per share amid weak market sentiment. The company reported a constant currency (CC) revenue growth of 3.5% in the June quarter, which is seen to be weak compared to the 14.3% in the previous quarter. Attrition continues to weigh down on TCS, clocking in at 19.7% – a rise of 230 basis points sequentially. In the April-June period, the IT firm added 14,136 employees to its rolls. Analysts are mixed in their assessment of the quarterly performance of TCS.
Analysts at Motilal Oswal have kept their rating and target price unchanged, however, estimates have been trimmed down. “We have tweaked our FY23/FY24 EPS by ~4% to account for lower margins. We expect a USD revenue CAGR of 9.3% over FY22-24 and INR EPS CAGR of 13.1% during the same period,” the brokerage firm said. Motilal Oswal said that TCS management commentary on the demand environment and deal pipeline remained intact with no visible impact of the weakening macro environment. However, the management has indicated that the US will do better than Europe, due to client concerns over the slowdown. Analysts still believe TCS is well placed to ride out macro headwinds. “Our TP of INR3,730 implies 28x FY24E EPS, with a 14% upside potential. We maintain our Buy rating on the stock,” they said.
The brokerage firm said that TCS reported an in-line quarter. “Deal wins were modest but June is not the best quarter for deal wins. While demand could potentially slow in the future, TCS will gain share from peers,” the brokerage firm said. “We maintain ADD rating. Our revenue estimates are based on global IT spending growth of 8% in CY2022/ FY2023E and 3-4% in CY2023/FY2024; we do expect some moderation in IT spending growth for a short period and expect normalization subsequently,” they added. With an Add rating, analysts expect TCS to touch a fair value of Rs 3,400 apiece.
Although TCS fell short of estimates pinned by Edelweiss, the brokerage firm has maintained a buy rating on the stock with a bullish stock outlook. “. We are reducing USD revenue growth forecast to incorporate cross-currency headwinds. We are also cutting FY23E/FY24E EPS by 4%/3.7%. Retain ‘BUY’ with an unchanged TP of INR5,000 based on a valuation rollover to Q3FY24E,” Edelweiss said. The brokerage firm said that demand visibility for 2023 remains intact. “Operating margin for Q1FY23 fell by 190bp QoQ to 23.1% due to annual wage hike (150bp), higher-than-anticipated sub-contracting costs and travel expenses. However, we expect margins to improve hereon over the course of year, unlike last year, when margins remained under pressure due to elevated supply-side challenges,” they added.
Analysts at JM Financial have trimmed their target price for TCS post the quarterly earnings. “EBIT margins declined by 190 bps sequentially to 23.1%, impacted adversely by wage increments (150 bps) , resumption of travel expenses(40 bps) and further increase in subcontracting expenses(9.7% of revenues, 50 bps QoQ/ 160 bps YoY). Net profits thereby were lower due to operating miss and lower other income,” said JM Financial. The brokerage firm has trimmed its target price to Rs 3,600 per share from Rs 3,700 per share based on 28x June 2024E EPS.
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