Should You Buy TCS Shares? India’s largest IT services firm Tata Consultancy Services (TCS) on Monday reported a consolidated net profit of Rs 10,431 crore for the September 2022 quarter, up 8.4 percent year on year. The net profit of the company was Rs 9,624 crore in the corresponding period of the previous financial year.
On a sequential basis, TCS net profit witnessed a 10.05 percent jump from Rs 9,478 crore in the previous quarter. Sales witnessed a 4.83 percent increase on a quarterly basis from Rs 52,758 crore, according to a BSE filing.
On a constant currency basis, TCS’s second quarter 23 sales increased 15.4 percent year-over-year, while dollar sales increased 8.6 percent to $6,877 million.
Tata Consultancy Services’ churn in IT services was 21.5 percent in the September 2022 quarter, up from 19.7 percent recorded in the previous quarter. The turnover in the March quarter was 17.4 percent.
TCS also announced its second interim dividend on Monday. “We would like to inform you that at the board meeting held today (Monday), the directors announced a second interim dividend of Rs 8 per equity of Rs 1 each of the company,” TCS said in a statement.
Despite beating Street expectations on most fronts, Tata Consultancy Services’ Q2 results failed to convince investors to buy the stock amid signs of moderation in demand due to increased uncertainty in Europe .
Down about 23 percent from its 52-week high of Rs 4,045.50, TCS shares traded about 1 percent lower Tuesday morning.
Should you invest in TCS?
Global brokerage Nomura said the pace of the second quarter was modest and there was no cheering about the growth prospects. “There was no mega deal (>$500 million), there were a few $400 million deals, and most of them were small and medium-sized deals. TCS indicated that customers are taking longer than usual to close large deals given the macro uncertainty, leading to a lower share of qualified deals in the overall pipeline,” said Nomura analyst Abhishek Bhandari.
The brokerage, which has a downgraded rating on the stock, has a price target of Rs 2,620, indicating a downside potential of 16 percent.
“Deal profits of $8.1 billion were stable year-over-year, but a high level of subcontracting with lower net hires reflects management’s caution amid an uncertain macro. We are increasing our estimates for FY23-25 by 2-5 percent to account for the depreciation of INR against the USD and expect TCS to deliver 12 percent EPS CAGR over FY22-24. TCS’s premium valuations could limit the upside,” Jefferies said globally, maintaining a Hold rating on TCS shares with a revised price target of Rs 3,180 each.
“TCS sees some caution on longer-term deals and faces some delayed decision-making in Europe, but it remains a strong spending environment in the US. While we remain concerned about margin in the third quarter due to cost optimization timelines, the supply situation in 2HFY23 along with benefits from more fresh additions in the last few quarters and lower subcontractor costs should help margins,” said Motilal Oswal , which has Buy tag with a target price of Rs 3,580.
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