WHY TCS shares declined despite steady Q1 earnings, brokerages divided on stock performance

A day after good quarterly results, the shares of Tata Consultancy Services (TCS) declined by around 2 per cent to Rs 3200 per share on the BSE intraday trade today. Even the brokerages are divided on the stock as the company reports quarterly results below estimates but the majority of them still bullish.

TCS on Thursday became the first company to come out with its first-quarter results of the financial year 2021-2022. It reported over a 28 per cent jump in the Q1 FY22 consolidated profit to Rs 9008 crore year-on-year, while its consolidated revenue grew over 18 per cent to Rs 45411 crore YoY basis.

The scrip on Friday opened lower around 1 per cent, however, turned positive by a quarter per cent in the early trade. The stock at around 02:40 pm, has slipped over 1.5 per cent to Rs 3204 per share on the BSE, as against a 0.42 per cent decline in the S&P BSE Sensex today.

Goldman Sachs maintains a Buy rating on TCS but reduces the target to Rs 3,703. It believes company’s strong domain expertise to help maintain double-digit revenue growth over FY22-24. The brokerage also reduces EPS estimates by 2-5 per cent to factor in loss in India business and lower margin. 

TCS misses Q1 revenue and margin forecasts, says UBS while maintaining a Neutral rating stance. It expects consensus earnings to reduce post Q1 numbers and sets a target of Rs 3345 per share.

Maintaining an Overweight rating, JP Morgan says TCS deal wins remain strong and sets a target of Rs 3680 per share. It adds, TCS’ exposure to India is higher than its peers.

On the other hand, Citi has a Sell rating on TCS shares as it finds valuations high for an FY20-23 EPS CAGR estimate of 7 per cent. Q1 slightly below brokerage expectations on revenue, says Citi adding further that India business weak on QoQ basis as expected. It cuts a target to Rs 3080 per share.