CLSA, Macquarie, J.P.Morgan, Investec share their views on TCS, I.T. giant clocks 13% gains in last 1 week after buyback and Q2 results yesterday
TCS share buyback: CLSA, Macquarie, JPMorgan, Investec crunch the numbers.
CLSA has retained outperform rating on TCS and increased target price to Rs 2750 from Rs 2610. They raise FY22-23 EPS estimates by 3% for TCS. CLSA highlights TCS reported strong Q2 FY21 results after muted performance in Q1 FY21. Management commentary was extremely strong and highly qualitative. Their order book is optically strong and management is extremely bullish on new orders from here on as well. Apart from higher interim dividend they also announced buyback of Rs 16000 cr. Valuations are at 60% premium to its five-year median, it appears rich and buyback price could underwhelm investors.
Macquarie maintains outperform rating on TCS and raises target to Rs 3030 from Rs 2487. They hike FY21-23 EPS by 3.5-8.4% for TCS. They say TCS is on the cusp of a strong growth cycle. Demand drivers for digital transformation are extremely strong for TCS. Management has indicated the order book is strong though led more by small and mid-sized deals. They said margin improvement will continue for TCS due to higher growth and changing hiring model in medium term. Higher demand from enterprises for cloud transformation to improve resilience posts the ongoing pandemic. Strong capabilities and significant investments in products and platforms augur well for TCS positioning.
J.P.Morgan retains an overweight rating on TCS and raises target to Rs 2900 from Rs Rs 2650. They upgrade FY21-23 EPS by 1-2% for TCS.This I.T. major displays clearly that India’s Tech companies are enjoying a sharp V-shaped recovery from Covid-19. The recovery in revenues and margins are stronger than anticipated demand. TCS had another quarter of strong deal wins, thanks to one mega deal ($2.5 bn from Phoenix system) and several small and mid-sized deals. Margin expanded 260bps from recovering utilization levels, changing resource mix and cuts in discretionary expenses. However, J.P. Morgan highlights with growth coming back, resumption in wage hikes and focus on growth acceleration is likely to keep incremental margin expansion limited.
(Authored by Rahul Kamdar)
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