rajesh gopinathan exit | tcs stock: Up 160% during Rajesh Gopinathan’s tenure, will TCS stock rally sustain after resignation?


Although the out-of-the-blue resignation of TCS CEO Rajesh Gopinathan last evening came as a negative surprise, brokerages say investors must use any near-term weakness to buy the stock given the growth prospects.

While most of its peers were trading higher, TCS shares lost over 1% on Friday to Rs 3,145.

“In the 55 years of TCS’ history (since it was founded in 1968), Mr Krithivasan (TCS CEO designate) will only be its fifth CEO — a testimony to stability and quality of its management. We see nil disruption from this management transition,” Nuvama analyst Vibhor Singhal said.

Under Gopinathan’s leadership, TCS has delivered revenue/earnings CAGR of 13%/11% over FY18–23. In the last six years of his tenure, the stock has grown at 18% CAGR or a total return of around 160%.

Here’s what top brokerages said on TCS CEO Rajesh Gopinathan’s resignation:

Kotak Institutional Equities | ADD | Target price: Rs 2,500
While exits are possible, it must be pointed out that Krithivasan was a clear frontrunner in case Rajesh ever wished to step down. The question that we have been asked is why appoint Krithivasan when age is not on his side; after all, Krithivasan is 57 years old.

Motilal Oswal | BUY | Target price Rs 3,810
We continue to see TCS as the best play in the IT services space in the current environment. It is focused on cost optimization and vendor consolidation, both of which are its strong areas. TCS is also poised to gain from a favorable pyramid mix change to improve margins in FY24, ahead of its peer group.We have a BUY rating on the stock and would recommend adding to the name on any near-term weakness due to this news.

JPMorgan | UNDERWEIGHT | Target price Rs 3,000
Surprising change at top in an uncertain year with slowing momentum. Krithi has spent 38 years at TCS across different roles and is known as a dedicated company man who should keep strategies largely unchanged.

Citibank | SELL | Target price Rs 2,990
The appointment of K Krithivasan should ensure continuity. The changes to strategy if any brought by him will be keenly awaited. The Street will look forward to interacting with the CEO designate.

CLSA | OVERWEIGHT | Target price Rs 3,550
Transition is likely to be smooth and hence, we expect minimal business impact. We believe succession planning could become a point of focus, especially for long-term investors.

Morgan Stanley | EQUAL WEIGHT| Target price Rs 3,350
Planned resignation of CEO comes as a surprise and may create a short-term overhang. However, expect transition to be smooth & well-managed, as seen in the past. The stock is unlikely to underperform in the coming months, going by past experience.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)



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