TCS share price: TCS Q4 numbers fail to trigger upgrades from foreign brokerages

NEW DELHI: TCS’s quarterly earnings, record order book and the management commentary impressed foreign brokerages but could not trigger fresh rating upgrades as margin volatility remains a big overhang. JPMorgan said it would maintain ‘neutral’ on the stock due to lack of future triggers, even as it believes Q4 numbers were solid with revenue beat and flat margins. The brokerage has a target of Rs 3,900 on the stock.

The largest IT player reported a 7.4 per cent year-on-year rise in consolidated net profit at Rs 9,926 crore compared with Rs 9,246 crore in the same quarter last year. This was largely in line with an ET NOW poll estimate of Rs 9,890 crore.

Revenues rose 15.75 per cent YoY to Rs 50,591 crore from Rs 43,705 crore in the year-ago quarter and beat ET NOW poll figure of Rs 50,070 crore. Ebit margin at 24.5 per cent fell short of ET NOW poll estimate of 25 per cent.

Morgan Stanley said it would maintain ‘equal weight’ due to TCS’s premium valuations. It said the macro climate is volatile but demand remains resilient.

Order intake and management commentary, Morgan Stanley said, points to resilience but supply side appears to be a bigger challenge, it said while suggesting a target of Rs 3,900.

TCS said deal wins for the quarter came in at $11.3 billion, its highest ever. For the financial year FY22, orders stood at $34.6 billion. IT services attrition continued to climb, reaching 17.4 per cent. However, incremental attrition has moderated, the company said in a BSE filing.

CLSA, which has a target of Rs 4,000 on the stock, said order book and hiring were strong but volatile margin will remain a key hangover. It finds Q4 results to be largely in line with its estimates. Strong exit order book improves FY23 revenue growth outlook. Margin improvement could be a tight walk, it said.

BofA Securities said strong deal wins may firm up FY23 revenues but profitability will be volatile. This brokerage has a target of Rs 3,780 on the stock.

Nomura said that the ongoing participation by TCS in digital transformation deals in the market and its decent order book should help the company record 12.5-14.4 per cent YoY growth in dollar revenues in FY23-25.

“We modestly increase FY23-24F EPS by 1 per cent. We maintain our neutral rating on TCS and marginally lift our target price by 1 per cent to Rs 3,930 set at 29 times FY24 EPS of Rs 135.5. Key downside risks include a slowdown in deal wins hurting revenue growth and margin pressure from prolonged higher attrition. We continue to prefer Infosys owing to its strong execution,” Nomura India said.