Should you Buy TCS Shares? India’s largest IT services company Tata Consultancy Services (TCS) on Monday reported a consolidated net profit of Rs 10,431 crore for the September 2022 quarter, a jump of 8.4 per cent on a year-on-year basis. The company’s net profit had stood at Rs 9,624 crore in the corresponding period of the previous financial year.
On a sequential basis, TCS‘ net profit witnessed a 10.05 per cent jump from Rs 9,478 crore in the previous quarter. Its revenue witnessed a 4.83 per cent rise quarter-on-quarter from Rs 52,758 crore, according to a BSE filing.
On a constant currency basis, TCS’ Q2FY23 Revenue jumped 15.4 per cent Y-o-Y, while the revenue in dollar terms was up 8.6 per cent to $6,877 million.
Tata Consultancy Services’ attrition rate in IT services stood at 21.5 per cent during the September 2022 quarter, which is higher than the 19.7 per cent registered in the previous quarter. The attrition rate in the March quarter was 17.4 per cent.
TCS on Monday also declared its second interim dividend. “We would like to inform you that at the board meeting held today (Monday), the directors have declared a second interim dividend of Rs 8 per Equity Share of Rs 1 each of the company,” TCS said in a statement.
Despite beating the Street expectations on most fronts, the Q2 results of Tata Consultancy Services failed to convince investors to buy the stock amid signs of moderation in demand environment due to higher uncertainty in Europe.
Down about 23 per cent from its 52-week high of Rs 4,045.50, TCS shares were trading about 1 per cent lower on Tuesday morning.
Should you Invest in TCS?
Global brokerage Nomura said the Q2 beat was modest and there was no cheer on the growth outlook. “There was no mega deal (>$500 mn), had a few $400 mn deals, and most were small and mid-sized deals. TCS indicated that clients are taking longer than usual to close large deals given the macro uncertainty, leading to a lower proportion of qualified deals in the overall pipeline,” Nomura analyst Abhishek Bhandari said.
The brokerage, which has a reduce rating on the stock, has a target price of Rs 2,620 which signals a downside potential of 16 per cent.
“Deal wins at $8.1 bn were steady YoY but high subcontracting with lower net hiring reflects management’s caution amidst an uncertain macro. We raise our FY23-25 estimates by 2-5 per cent to factor INR depreciation against USD and expect TCS to deliver 12 per cent EPS CAGR over FY22-24. TCS’ premium valuations may limit upside,” said global brokerage Jefferies while maintaining a Hold rating on TCS shares with a revised target price of Rs 3,180 apiece.
“TCS is seeing some caution for longer-term deals and is experiencing some delayed decision-making in Europe, but it continues to see a strong spending environment in the US. While we remain concerned about Q3 margin due to the timelines of cost optimization, the supply situation easing out in 2HFY23 along with benefits from increased fresher additions in the last few quarters and lower sub-contractor costs should aid margins,” as per Motilal Oswal which has Buy tag with a target price of Rs 3,580.
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