Brokerages bullish on TCS post strong q4 earnings; see 27% upside on strong performance, highest ever quarterly deal lift-off

Brokerage houses are bullish on India's largest IT firm Tata Consultancy services (TCS) after the IT behemoth posted better than expected returns on Monday, April 11. IT major TCS reported a year-on-year rise of 7.4 per cent in its consolidated net profit for the fourth quarter of FY22 and the company's net profit for the quarter under review rose to Rs 9,926 crore from Rs 9,246 crore for Q4FY21. Also, the IT firm booked revenues of Rs 50,591 crore, its highest ever, in the March quarter, which was 15.8 per cent higher than the same reported in the year-ago period.   

Meanwhile, post strong Q4 numbers, brokerages have been upbeat on the IT major and see a huge upside from current levels. Based on strong performance, deal lift-off and good margins, the most aggressive target has been put out by BoB Capital Markets.    

BoB Capitals | Target Price: Rs 4,660   

Though BoB Capital marginally cut the target price of TCS from Rs 4770 to Rs 4660, it still has the highest percentage upside vis a vis other brokerage houses are concerned. At target price of Rs 4,660 per share, BoB Capital sees an upside of over 27% on April 13 closing price of Rs 3661.95 a share on the BSE. "We tweak estimates to factor in the results and roll valuations to Jun’24, leading to a new TP of Rs 4,660 (vs. Rs 4,770), set at an unchanged 36.5x P/E," it said in a note.    

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HDFC Securities | Target Price: Rs 4210   

HDFC Securities recommended adding TCS Shares with the target price of Rs 4210, which is an upside of 15% at Rs 3661.95 that the share recorded on Wednesday. The brokerage believes strong deal bookings of USD 11.3bn by TCS will help the share price going forward. It cited TCS market share gains compared to Accenture outsourcing, calibrated focus on building upstream/consulting with organization as other factors behind its bullishness.    

"Medium term drivers such as prioritization of tech budgets, strong execution framework (including high retention) and services breadth, including industry platforms remain intact. Our target price of INR 4,210 is based on 32x FY24E EPS with EPS CAGR at 12% over FY22-24E and we maintain ADD on TCS," said the brokerage.   

Axis Securities| Target Price: Rs 4200   

By reporting TCS revenue growth of 3.4% QoQ in Rupee terms, TCS beat Axis Securities' expectations in Q4FY22. It is of the view that the company's commentary on the verticals BFSI, Hi-tech Media, Life Sciences, and Retail was positive and expects the company to report double-digit growth in FY23.   

"Deal-wins for the quarter continued strong and remained at an all-time high. We recommend a BUY rating on the stock and assign a 31x P/E multiple to its FY24E earnings of Rs 135.2/share to arrive at a TP of Rs 4,200/share, implying an upside of 14% from the CMP," said Axis Securities.   

Earlier analysts also said TCS posted good results and were bullish due to the deal lift off.   

"TCS earnings have been in line with expectations. It has got the higher ever quarterly deals in Q4FY22. The company continues to build strong relationship with its clients and it seems likely that it will continue its growth journey in the future as well as the companies all around the globe move towards making a strong digital ecosystem," said Vijay Dhanotiya, Lead of Technical Research, Capitalvia Global Research Ltd.    

The majority of the clients are focusing on tech budgets in view of cost pressures faced in their respective businesses and it may be the last segment to get hit, said Arun Malhotra, Founding Partner & Portfolio Manager, CapGrow Capital Advisors.   

"Any impact could be seen with a time lag of 6 mths. Overall, we still see the demand environment and deal wins to be strong drivers of future stock returns for IT companies," said Malhotra. 

Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)