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Business News/ Markets / TCS Stock Check: Up 15% in the last 1 year, is it a good time to buy the IT major?
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TCS Stock Check: Up 15% in the last 1 year, is it a good time to buy the IT major?

TCS is in focus after the IT major kickstarted the Q2 earnings season yesterday. Mint has collated views of brokerage firms and technical analysts to understand whether the stock is a ‘buy’ at this juncture or not. Let's take a look:

TCS is in focus after the IT major kickstarted the Q2 earnings season yesterday. Mint has collated views of brokerage firms and technical analysts to understand whether the stock is a ‘buy’ at this juncture or not. Let's take a look: (MINT_PRINT)Premium
TCS is in focus after the IT major kickstarted the Q2 earnings season yesterday. Mint has collated views of brokerage firms and technical analysts to understand whether the stock is a ‘buy’ at this juncture or not. Let's take a look: (MINT_PRINT)

The Indian markets have been on a bull run this year, hitting multiple peaks. The overall positive investor sentiment along with some improvement in headwinds have also led to a strong recovery in the IT index, which underperformed benchmarks by almost 30 percent in 2022. IT heavyweight Tata Consultancy Services (TCS) was also a part of this recovery.

The stock has gained almost 15 percent in the last 1 year and 9 percent in 2023 YTD. In comparison, the Nifty IT index has gained over 16 percent in the last 1 year and over 12 percent in 2023 YTD.

In the 10 months of the current calendar year so far, the stock has given positive returns in 7 months and negative in 3. It is up around a percent in October extending gains after a 5 percent rise in September. Before this, it shed around 2 percent in August.

Meanwhile, the stock was also in the green for 4 straight months between April and July. Before that, it lost consecutively in March and February. It also rose over 5 percent in January.

The stock also hit its 52-week high of 3,680 earlier this month on October 9, 2023. Currently trading at 3,610, the stock has already advanced over 18 percent from its 52-week low of 3,053.30, hit on October 13, 2022.

According to a MintGenie poll of 42 analysts, 7 have ‘strong buy’, 15 have 'buy' and 12 have ‘hold recommendations on the stock. Meanwhile, 6 have 'sell' and 2 also have 'strong sell' calls on the IT major.

TCS
View Full Image
TCS

Earnings

TCS kickstarted the September earnings season yesterday reporting a 9 percent rise in its net profit at 11,342 crore compared to 10,431 crore in the corresponding period last year. Sequentially, the net profit was muted, up just 0.5 percent. Profit of the firm beat Street expectations in Q2.

Meanwhile, its revenue from operations rose 7.9 percent to 59,692 crore, compared to 55,309 crore in the corresponding period last year. The operating margin saw a nominal expansion of 0.3 percent year-on-year to 24.3 percent while the dollar revenue for the IT major stood at $7,210 million, compared to $7,226 million in the June quarter.

The company’s order book at the end of Q2FY24 stood at $11.2 billion versus $10.2 billion in the previous quarter, in line with analyst estimates and the book-to-bill ratio stood at 1.6. TCS reported the second-highest TCV ever in a quarter. Deal wins during the quarter also reported a rise of 9.8 percent compared to the June quarter.

"Strong deal momentum delivered us a very large order book in Q2 – our second-highest TCV ever in a quarter, and a good pipeline. The resilience of demand for our services, our clients' willingness to commit to long-tenure programs and their continued appetite for experimentation with Generative AI (Gen-AI) and other new technologies give us confidence in our longer-term growth prospects," said K Krithivasan, Chief Executive Officer and Managing Director of TCS.

The board of directors also announced its second interim dividend of 9 per equity share of 1 each post financial results on October 11, 2023, rewarding its shareholders. TCS post its first quarter results in July had announced a similar interim dividend of 9 per equity share of 1 each.

Furthermore, the TCS board approved a buyback worth 17,000 crore for 4.09 crore shares at a price of 4,150 per equity share, which is at a premium of about 15 percent.

Mint has collated views of brokerage firms and technical analysts to understand whether the stock is a ‘buy’ at this juncture or not. Let's take a look:

Fundamental Views

InCred Equities: The brokerage has retained its hold call on the stock but has raised its target price to 3,628 from 3,625 earlier. The new target also indicates a muted 0.5 percent upside potential.

"A key message we have been highlighting since the start of this calendar year was that 1) moderation in FSI (financial services and insurance) spending for a variety of reasons is a key risk to FY24F revenue growth assumption while rationalization of the workforce could improve utilization, thereby providing an upside risk to FY24F EBIT margin. Feeble FSI revenue momentum for two consecutive quarters, soft order booking in the FSI space (flat QoQ) and the US market (down 13.5 percent); and margin beat led by cost optimization, employee reduction, and improvement in utilization likely validates the same. Continuation of the challenges in FSI (driven by insourcing) hi-tech (slower adoption by fintechs) & communication (moderating capex intensity) verticals, in our view, could prolong the recovery to beyond FY24F," said the brokerage.

It has modeled a 7.2 percent US$ revenue CAGR over FY23-26F and an 11.5 percent PAT (in rupee terms) CAGR. Cash conversion (OCF/EBITDA was 76 percent over FY19-23), healthy return ratios & payout (100 percent of FCF) provide a cushion. Stronger execution is an upside risk while moderation in the order book is a downside risk, added InCred.

Axis Securities: The brokerage also has a hold call on the stock and raised its target price to 3,790 (from 3,550 earlier), implying an upside potential of 5 percent.

From a long-term perspective, Axis believes TCS has built a resilient business model by securing multiple long-term contracts with the world’s leading brands. It has also established robust capabilities that will enable it to gain market share moving ahead. However, prevailing uncertainties in large economies continue to pose short-term headwinds to the growth prospects of the company. It sees discretionary spending gradually increasing with newer technologies.

"The growth rate may slow down in FY24 due to uncertainties in the world’s largest economies. However, supply-side constraints are easing up, which will help the company gain some margin expansion in the near term. H2FY24 may see some revision on the demand side. The industry’s and the company’s long-term outlook remain robust," it added.

Nuvama: The brokerage has a buy call on the stock with a target price of 4,150, indicating an upside potential of 15 percent.

The brokerage finds TCS's September quarter results mixed as revenue was slightly below its estimate whereas margins surprised positively against its expectation of 23.5 percent.

"We are tweaking our FY24E/25E EPS (-2.6 percent/-2.8 percent). This along with a valuation rollover to 27x average of FY25E and FY26 PE yields a TP of 4,150 from an earlier target of 4,000

Nomura: The brokerage has a reduce call on the stock and has reduced its target price to 3,030 ( 3,040 earlier), implying a 16 percent downside.

The company's revenue missed its estimates even as the order book held up, the brokerage said, adding that the near-term visibility remains low. Weak headcount addition persists even as attrition continues to moderate, it noted. Nomura forecasts that TCS is unlikely to hit 25 percent EBIT margin in FY24.

Morgan Stanley: The brokerage has an Equal Weight call on the stock and has cut the price target to 3,590 from 3,730 earlier. The new target implies a potential downside of half a percent

"TCS missed on revenue despite improving order booking trend. Good execution on theorder book is not translating into revenue optimism for H2 and has driven cuts to revenue estimates. The Q2 results will likely weigh on PE multiples though EPS cuts are limited due to better-than-expected performance on margins," noted MS.

Technical Views

Om Mehra, Technical Analyst, SAMCO Securities

Source: SAMCO
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Source: SAMCO

After attaining a 52-week high of 3,679, TCS experienced some profit-booking at higher levels. Despite this, the primary trend remains bullish and that is evident through the Higher High Higher Low pattern on the daily chart.

The Nifty IT Index has also shown strength, rallying after retesting previous support, with support around 31,500-32,000 levels.

TCS exhibits robust price action, trading above the 20 and 50 (DMA) daily moving averages. Furthermore, it is also trading above the middle Bollinger band as well. Indicators such as MACD show a positive crossover, signaling a sustained bullish trend in the short term.

Notably, the delivery volume has surged by 33.28 percent in the last one month. In the past week, while the BSE 500 delivered a 1.75 percent return, TCS outperformed with a 2.80 percent gain.

For long-term investors, these indicators suggest an opportune moment to accumulate TCS at the current price, as it's anticipated to yield promising returns in the coming months.

Pravesh Gour, Senior Technical Analyst at Swastika Investmart

TCS stock has broken a triangle formation on the weekly chart; it also forms higher highs and higher lows. The overall structure of the stock looks good for short- to long-term investment, as it is trading above all its important moving averages.

On the upper side, 3,700 is an immediate resistance; above this, we can expect a big move till 3800+ in the shorter time frame, while on the downside, 3,470 is the demand zone for any correction.

The momentum indicator RSI (relative strength index) is also positively poised, whereas MACD (moving average convergence divergence) is supporting the current strength.

Aditya Gaggar Director of Progressive Shares

Indian Tech giant, TCS is in the secular uptrend with a higher top higher bottom formation. After registering an all-time of 4,043 in Jan 2022, the stock went into a sideways correction due to the known factors but recently it has given a breakout from a Symmetrical Triangle Formation (Monthly chart) which was confirmed with a positive crossover in MACD and ADX while the lower time frame also boosting the confidence by giving a breakout from the Cup and Handle formation (Weekly chart). As per the triangle breakout, the long-term target is 4,500 while in the short to mid term one can expect the target of 4,000.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.

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Published: 12 Oct 2023, 10:58 AM IST
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