TCS shares fell more than 2% to Rs 3,248 on NSE on Tuesday after the IT major reported a 10.98% increase in its consolidated net profit at Rs 10,883 crore for the quarter ended December 2022, missing estimates. Company’s consolidated revenue from operations came in at Rs 58,229 crore, up 19.11% against Rs 48,885 crore in the corresponding quarter of the previous fiscal. TCS also announced a dividend of Rs 75 per share including Rs 67 as a special dividend, the record date for which is fixed at 17 January and the payment date is 3 February 2023. TCS shares have jumped more than 6% in the last six months. However, the counter has fallen 14% in last one year.

According to analysts at ICICI Securities, TCS‘ Q3 performance tad better than their expectations both in revenues and margins. Order book though has come down on sequential basis but it continued to be in the guiding range of US$7-9bn and it also reflects the pain in Continental Europe geography. “The company is not seeing any material change in demand environment commentary from what they have given in Q2 and which means that US and UK market likely to be resilient in the near term while Europe geography continue to see challenges due to geopolitical risks,” they said.

We felt that TCS commentary was pointing to a high single-digit CC revenue growth in FY24 compared to the teen growth seen in both FY22/FY23 and seems to be implying a soft-landing macro situation in the US in CY23. We believe that revenue growth will likely be in the low-to-mid single digit, with margins not expanding in FY24 due to pricing pressure and normalisation of certain costs,” analysts at Nirmal Bang said. The brokerage maintains a ‘SELL’ rating on the stock with a target price of Rs 2,635, representing 12-month forward PE of 19.9x on Sept ‘24E EPS. “At 27x PE on FY24E EPS, we believe that the returns will be sub-optimal,” it said.

According to the analysts, TCS’ order book contains a healthy mix of growth and transformation initiatives, cloud migration, and outsourcing engagements. This has given medium-term revenue visibility assurance- however, whether growth may be starting to slow down, or whether the order book drop is a temporary result of a seasonally weak quarter remains to be seen. “Cognizant of the uncertainty around the macro-environment worsened by near-term recessionary risks, we have trimmed our estimates and valuation multiple and revised our rating to NEUTRAL on the stock with target price Rs. 3,442 implying a PE of 26x to NTM EPS of Rs. 132 and 25x of FY24E EPS of Rs 137,” the brokerage said.

Analysts at Philip Capital believe that TCS will be one of the big beneficiaries of the overall positive demand environment given its multiservice and multi-vertical offerings. They expect the IT services firm to continue to command valuation premium to its large-cap peers, on the back of its strong diversified profile, superior return profile (ROE of 43% in FY22), management stability, strong margins, and market leadership position. The brokerage maintains a ‘Buy’ call on the counter with a target price of Rs 4,000, implying a 20% upside. “We tweak our FY23/24 estimates (c-2%), mainly on account of lower other income. We introduce FY25 estimates and roll forward our TP to FY25 EPS. We now value TCS at 27x FY25 EPS,” it said.