TCS slips over 5% post-Q2 earnings; should you invest?
The IT major on October 8 reported a 14.1% rise in consolidated net profit at Rs 9,624 crore in the September 2021 quarter.
Shares of Tata Consultancy Services (TCS) on October 11 declined over 5% after the company’s September quarter earnings missed market expectations. The scrip traded 5.73% lower at Rs 3,710, while the benchmark BSE Sensex traded 0.55% higher at 60,388. The IT major on Friday reported a 14.1% rise in consolidated net profit at Rs 9,624 crore in the September 2021 quarter, aided by broad-based growth across geographies and verticals. According to Emkay Global Financial Services, TCS Q2 operating performance missed expectations, reporting lower-than-expected revenue and EBITM (earnings before interest, taxes and corporate overhead or management).
The company had logged a net profit of Rs 8,433 crore (excluding adjustment towards a legal claim) in the year-ago period. Its revenue grew 16.7% to Rs 46,867 crore for the September 2021 quarter, from Rs 40,135 crore in the year-ago period.
What should investors do?
YES Securities retained their bullish view on TCS with a target price of Rs 4,395, indicating an upside of 18,50% from the current market price. “We remain positive on the stock as the robust demand environment would help it to report double-digit revenue growth for FY22/FY23. The deal booking remains strong and would help to sustain growth momentum. There are near term margin headwind in this supply-constrained environment. However, we expect it to maintain a stable margin of around 26% aided by positive operating leverage,” the brokerage said.
On the other hand, JM Financial maintained a ‘Hold’ call on TCS with a target price of Rs 3,980. The brokerage said that the Q2 earnings of TCS did not live up to the high expectations given that the stock (sector) has moved up sharply in the run-up to results.
“Growth continues to get broad-based as is reflected in the strong YoY growth across key verticals and markets like the US apart from the expected rebound in India (over 15% QoQ increase after the 14% sequential drop seen in 1QFY22). However, a 4.2% QoQ c/c revenue growth fell short of both JMFe/street expectations with margins remaining in line with estimates. TCS expects the underlying demand strength to sustain beyond the FY22 rebound and suggests that the momentum will limit the usual 2H seasonality,” JM Financial said.
It further added that the Q2FY22 report is likely to push the case for the much-expected pause and consolidation after the tearing rally across the sector in the past 3M/6M.