TCS Falls As Management Change Worries Brokerages
TCS’ profit beat estimates in the October to December quarter.
India’s biggest software exporter Tata Consultancy Services Ltd. (TCS) fell as much as 3.9 percent to Rs 2,251, as investors shrugged off an upbeat third-quarter performance to focus on the top management change.
“The strong credentials of the outgoing chief executive officer - long history of industry leading performance, client connect and intense deal focus could increase investor nervousness,” brokerage Jefferies India wrote in a note to clients.
TCS appointed Rajesh Gopinathan as the chief financial officer after N Chandrasekaran took over as the new chairman of Tata Sons.
"... Chandrasekaran used to be a part of sales pitches and deal closures very actively and his absence will be felt," analysts at Nirmal Bang wrote in a report.
Among others, domestic brokerage Motilal Oswal said it was cautious on the stock in light of the recent management changes. While Jefferies cut the price target, Motilal and Nirmal Bang did not change its view on the stock.
Most other brokerages maintained their ratings on the stock, after TCS shrugged off worries over client spends, and said it would continue to focus on expanding its digital business.
Here are some of the views from brokerages on TCS:
Credit Suisse
- Topline: Revenue ahead of estimates boosted by India growth.
- Bottomline: Earnings before interest and taxes in line with estimates.
- Rating/Target Price: Maintains ‘Neutral’ rating with target price of Rs 2,300 per share.
Jefferies
- Topline: Revenue inline.
- Bottomline: Margins slightly ahead of estimates.
- Outlook: Commentary was positive on outlook especially in banking, financials and retail. Headwinds in Japan, Latin America, and Diligenta are now behind the company.
- Catalysts: Growth is expected to pick up in the seasonally strong first half of fiscal 2017-18, and a pick-up in deal flows.
- Risks: Macro environment, immigration reforms in the U.S., unfavourable cross currency headwinds.
- Rating/Target Price: Maintains ‘Buy’ rating; cuts target to Rs 2,650 from Rs 2,700.
A constructive outlook on demand and potential immigration issues, waning growth headwinds, robust deal flow and reducing attrition were key positives.Jefferies’ January 12 Report
Motilal Oswal
- Topline: Revenue ahead of estimates.
- Bottomline: EBIT margin ahead of estimates.
- Outlook: Outlook remains positive; undeterred by visa implications.
- Stock view: Cautious in light of the recent management changes.
- Rating/Target Price: Maintains ‘Neutral’ rating with a price target of Rs 2,250 per share.
For the industry in last couple of years, topmost level changes have understandably been accompanied with a round of flux and one will have to be watchful of a potentially similar shuffle at TCS.Motilal Oswal’s Report
Religare Capital Markets
- Topline: Constant currency revenue growth ahead of estimates.
- EBIT margins: In line with estimates.
- Risks: Growth challenges in application development and maintenance services, along with margin sustainability; cautious on management change.
- Rating/Target Price: Maintains ‘Sell’ rating; Target Price raised to Rs 2,300 from Rs 2,200.
With TCS chief N Chandrasekaran moving to Tata Sons, the street would closely monitor the performance of the new CEO so as to maintain the sector premium.Religare Capital Markets’ January 12 Report
Nirmal Bang Equities
- Topline: Revenue ahead of estimates.
- Bottomline: EBIT growth ahead of estimates.
- Risks: Management changes could impact deal flows, potential changes to H1-B visa regulations
- Rating/Target Price: Maintains ‘Sell’ rating with target price of Rs 1,956
- Price-Earnings multiple woes: Believe the current P/E premium of TCS over Infosys is unsustainable.
While publicly the management states that it has got tremendous bench strength, that does not seem to be visible.Nirmal Bang Equities Report
