TCS shares plunge on weaker than expected Q4 profit. Should you buy/hold? | Mint
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Business News/ Markets / Stock Markets/  TCS shares plunge on weaker than expected Q4 profit. Should you buy/hold?
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TCS shares plunge on weaker than expected Q4 profit. Should you buy/hold?

Brokerages did not share very bullish commentary as TCS said its fourth-quarter results were weaker than it had expected

The script was trading 1.28 per cent lower at ₹3,200.00 per share on the NSE.Premium
The script was trading 1.28 per cent lower at 3,200.00 per share on the NSE.

Shares of India's top IT exporter Tata Consultancy Services (TCS) plunged in Thursday's opening deals after the software giant's fourth quarterly profit missed analysts' estimates as cautious clients curtailed technology spending to prepare for a cooling economy.

The script was trading 1.28 per cent lower at 3,200.00 per share on the NSE.

The company's quarterly net profit rose 14.8 per cent to 11,392 crore. Analysts estimated 11,530 crore on average.

Its January-March order book stood at $10 billion, down 11.5 per cent from a year ago, but with an "all-time high number of large deals." For the ongoing quarter, TCS forecast a range of $7 billion to $9 billion.

Revenue from operations rose about 17 per cent.

TCS is the first among its peers to report quarterly earnings, setting the tone for an industry that is also staring at a recession in its major markets - the US and Europe.

Here's what brokerages recommend on TCS shares post Q4 results

Brokerages did not share very bullish commentary as TCS said its fourth-quarter results were weaker than it had expected.

Nuvama

While uncertainty looms large in the near term due to weak global macros, brokerage Nuvama Institutional Equities sees that as already priced-in, and remain positive on the IT sector given the demand environment remains strong—corroborated by robust deal flow.

Nuvama said the management talked about increasing near-term uncertainty in the overall demand environment – driven by weak global macros and ongoing banking concerns – leading to delayed decision-making.

TCS shall be one of the biggest beneficiaries of this demand over medium to long term, said Nuvama, retaining 'BUY/SO' with a target price of 3,750 from 4,100 earlier.

On balance, Nuvama said it has trimmed FY24/25E EPS by 1.3 per cent/0.3 per cent. This along with a valuation rollover to 25 times FY25E PE (from 30 times FY24E PE) yields.

Emkay

Emkay Global has tweaked its earnings estimates for FY24-25 (a 0-1.5% cut) post the FY23 performance. The brokerage retains 'Hold' with a target price of 3,300 per share at 22 times Mar-25E EPS.

Emkay said the management remains watchful in the near term, considering the heightened macro uncertainties; however, it reiterated confidence on accelerating revenue growth, once uncertainties abate.

What the brokerage liked: Healthy deal intake (TCV of USD10bn; book-to-bill of ~1.4x), moderation in attrition (20.1% vs 21.3% QoQ). What the brokerage did not like: Miss on operating performance.

Nomura India

TCS’ constant currency (CC) revenue growth of 0.6 per cent was weaker than the consensus estimate of 0.9 per cent CC growth. EBIT margin at 24.5 per cent was also lower than the Street estimate of 25 per cent. While the total contract value (TCV) of $10 billion was in line with expectations, heightened macroeconomic volatility continues to delay the recovery in US across verticals, even as the outlook is improving in continental Europe.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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ABOUT THE AUTHOR
Meghna Sen
Business journalist tracking markets, companies, economy and crypto for Livemint. She has 6 years of experience with online and print publications. Email: meghnasen08@gmail.com
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Published: 13 Apr 2023, 09:29 AM IST
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