What Analysts Have To Say About TCS’ First-Quarter Performance
Employees stand near a signage for Tata Consultancy Services Ltd. (TCS) at the company’s Synergy Park campus in Hyderabad, India. (Photographer: Namas Bhojani/Bloomberg)

What Analysts Have To Say About TCS’ First-Quarter Performance

Analysts expect Tata Consultancy Services Ltd. to recover gradually as uncertainties due to the coronavirus outbreak prevail.

India’s largest software services exporter reported a 13% sequential drop in net profit at Rs 7,049 crore in the quarter ended March. Its margin contracted more-than-expected to 23.6% from 25.1% in the preceding three months.

Still, the company said it has “bottomed out”, and should now start tracing its path to growth. That prompted analysts to retain their investment recommendations.

Of the 47 analysts tracking the stock, 16 have a ‘buy’ rating, 18 suggest a ‘hold’ and the rest recommends a ‘sell’. The average of Bloomberg consensus 12-month target price implies a downside of 8.2%.

Shares of TCS fell as much as 1.22% on Friday, extending the losing streak for the third straight session, compared with a 0.44% drop in the benchmark Nifty 50 Index.

Also read: TCS Says Worst Is Over After Pandemic Hits Q1 Results

Here’s what analysts have to say about TCS’ fourth-quarter results:

CLSA

  • Maintains ‘outperform’ but cuts target to Rs 2,204 apiece from Rs 2,260.
  • First quarter margin miss but stable cash flow and optimistic outlook.
  • Order booking strong but concentrated.
  • Expects gradual volume recovery; pricing still a risk.
  • TCS trades at 25 times its estimated FY22 EPS — a 19% premium to three-year median.
  • Few triggers from first quarter, incremental upside to be limited.
  • Superior cash generation should sustain relative outperformance.

Phillip Capital

  • Maintains ‘buy’ with a target price of Rs 2,212 apiece.
  • Muted performance; deal wins and outlook positive.
  • Margin fall by 150 basis points quarter-on-quarter is a bigger disappointment.
  • Deal flow more than offsets disappointments.
  • FY21 anyway remains a washout year for the entire sector.
  • Expects TCS to bounce back strongly in FY22.
  • Valuations at 23 times its estimated FY22 price-to-earnings might appear expensive.
  • Sees TCS to continue to command valuation premium to its peers.

Macquarie

  • Downgrades to ‘neutral’ with a price target of Rs 1,900 apiece.
  • Growth recovery to be gradual given uncertainty in key verticals.
  • Margin drag to remain till growth recovers.
  • Expects EBIT margin to decline 80 basis points in FY21 and improve 160 basis points in FY22.
  • Uncertainty on large deal wins persists.
  • Expects to benefit from vendor consolidation in the medium-term.
  • Prefers Infosys, HCL Technologies.

Motilal Oswal

  • Maintains neutral with a target price of Rs 2,300 apiece.
  • Miss estimates amid challenging environment but positive outlook.
  • Deal wins and commentary on banking, financial services and insurance vertical is encouraging.
  • Management undertook best possible efforts.
  • Deal wins were stronger than expectations.
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