What should investors do with TCS post Q1 results: buy, sell or hold?

Reacting to the results, Credit Suisse maintained its neutral rating but slashed target price to Rs 2,000 from Rs 2,130 earlier

Published: Jul 10, 2019
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After a slightly below expectations June quarter earnings by Tata Consultancy Services on July 9, global brokerages have mixed recommendations on the IT major with a couple of them slashing their respective 12-month target price.

Shares of TCS fell more than 1 percent in intraday trade on July 10.

The country's largest software services firm reported 10.8 percent YoY growth in consolidated net profit to Rs 8,131 crore for the quarter ended June 30. The revenue of the Mumbai-based firm grew 11.4 percent YoY to Rs 38,172 crore in the June 2019 quarter.

Digital revenue, which accounted for about one-third of the top line, grew 42.1 percent in the said quarter over the previous year.

Reacting to the results, Credit Suisse maintained its neutral rating but slashed target price to Rs 2,000 from Rs 2,130 earlier. The near-term commentary has turned cautious.

TCS is likely to miss its 26-28 percent margin band once again this year. The global investment bank has moderated FY20/FY21 growth estimate by ~150 bps, and slashed EPS estimates by 2-4 percent.

Another brokerage firm CLSA maintained its buy call on TCS but slashed its target price to Rs 2,570 from Rs 2,650 earlier.

TCS Q1 reported a miss on the revenue and margins, but deal wins and the outlook remain strong. The constant currency growth stood at 10.6 percent YoY, however, the company missed margins due to supply pressure.

The IT major is well-positioned to exploit scale digital transformation adoption. CLSA slashed FY20-22 EPS by 3 percent.

Here's what other global brokerage firms recommend for TCS post Q1 results:

Morgan Stanley: Equal-Weight| Target: Rs 1,980

Morgan Stanley maintained its equal-weight call on TCS with a target of Rs 1,980. The Q1 revenue growth was weaker-than-expected, it said.

However, Q2 will be the key to achieving management's goal of sustaining double-digit constant currency growth in FY20. The global investment bank sees downside risks to street estimates.

HSBC: Hold| Target: Rs 1,900

HSBC maintained its hold rating on TCS with a target price of Rs 1,900. Growth slowed in Q1, despite strong deal wins, and due to a cyclical slowdown.

The long-term outlook remains positive. There is a significant macro slowdown and currency appreciation are key downside risks, said a note by HSBC.

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