Bangalore / Mumbai: Shares in Tata Consultancy Services Ltd rallied more than 5% in a flat market on Friday after the top Indian outsourcer beat quarterly forecast and brokerages raised their target price.
TCS, whose clients include Citigroup, General Electric, Ferrari and American International Group, posted a 21% rise in quarterly profit and said after market hours on Thursday it was seeing strong demand.
“Employee attrition and wage pressures could serve as temporary impediments, but ultimately underscore the strength of the demand rebound,” BNP Paribas said in a note.
“This combined with TCS’ continued margin discipline make it a key stock to play the rebound story,” it said.
The result had contrasted with bluechip Infosys Technologies Ltd, the country’s No. 2 outsourcer, which had reported a rare drop in quarterly profit on Tuesday.
Shares in TCS, which the market values at about $34 billion, were trading up 4.9% at Rs822.50 in a Mumbai market that was up 0.1% at 10:05 a.m. The stock had risen as high as Rs825.90.
“We believe TCS’s broadbased 8%-plus volume growth, similar to Infosys, indicates strong demand momentum,” brokerage RBS Equities said in a note, raising its price target for the stock to Rs930 from 900.
“The stock could see a dual up-lift near term from earnings upgrades and valuation rerating closer to Infosys,” it said.
The price target would value TCS shares at 21 times 1-year forward rolling earnings, putting it at a 4% discount to Infosys compared with a 10% average discount historically, RBS said.
The brokerage said employee attrition rates, which were 13.1% for the company in the June quarter, were likely to come down in the second half of the fiscal year.
TCS has raised its hiring target for 2010-11 by 10,000 to 40,000 reflecting firm demand.
JPMorgan raised its share price target for Tata Consultancy to Rs915 by March from 850, while BNP lifted its target price by Rs15 to 925.
Tata Consultancy, part of the Tata Group that spans the commodities, autos and services businesses, said net profit in the June quarter rose to Rs1,840 crore ($395 million) from Rs1520 crore a year ago under US accounting standards.