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Ahead of its March quarter results, shares of Tata Consultancy Services (TCS) have an average price target of Rs 3,694, as per publicly available data with Trendlyne, which suggests a 15 per cent potential upside on the counter. Analysts noted that TCS shares are trading at just 12 per cent premium over Nifty IT against 15 per cent premium that they traded at on average over the last 16 years.
That premium was as high as 30-40 per cent in January-May 2020, said ICICI Securities in its results preview, adding that it was the time when there was heightened level of uncertainty around Covid crisis.
“If the current banking crisis deepens we believe TCS’ premium over Nifty IT will widen due to its strong balance sheet, cash position, profitability and return profile,” the brokerage said.
Brokerage Nirmal Bang Institutional Equities, which has been keeping an underweight stance on the IT sector since April 2022, still sees valuation expensive for IT stocks including TCS. Even if one were to ignore the next 12–18-month risks around recession and take a 5-year view, starting valuations are expensive for TCS and can at best deliver mid to high single-digit total stock returns (including dividends), the brokerage said.
“While the new CEO, K Krithivasan, has not indicated any radical change in strategy, we would wait to see if there are any minor tweaks to it (especially around the new corporate structure of addressing different sets of clients which was instituted a year back and was indicated to be ex-CEO, Rajesh Gopinathan’s idea),” said Nirmal Bang Institutional Equities.
Nuvama Institutional Equities and PhillipCapital have TCS among their preferred IT picks. Notwithstanding the Q4FY23 results being impacted by weak global macro, Nuvama said the strong deal flow momentum reinforces its positive stance on the sector.
“Accenture’s latest results allude to strong demand environment in IT outsourcing. We expect a sustainable strong demand environment to drive robust earnings growth for the sector over next three years,” it said.
Kotak Institutional Equities said TCS is expected to be a beneficiary of higher focus of enterprises on cost take-outs and core modernization. It expects investor focus to stay on 2023 budget closure and pace of decision-making and ramp up of budgeted spends and also on pipeline of cost take-out and vendor consolidation decisions of clients and win-rates.
Investors, it said, would keenly follow changes to strategy, key bets and priorities of the organisation under new CEO and continuity of current organisational structure that underwent a reorganisation under Rajesh Gopinathan.
IT bellwether Tata Consultancy Services (TCS) is likely to report a 14-19 per cent year-on-year (YoY) rise in net profit for the March quarter on a 17-18 per cent growth in sales. Ebit margins are seen expanding and coming in excess of 25 per cent while order wins are likely in the $8.5-10 billion range. Analysts expect a cautious management commentary on client spending, given delays in decision-making. The Street would be keenly following any commentary on BFSI and Hi-tech verticals to gauge where the growth may take a hit in the near-term.
Antique Stock Broking said TCS may report a 14.5 per cent YoY rise in net profit at Rs 11,366 crore in the March quarter compared with Rs 10,846 crore in the year-ago quarter. It sees TCS’ top line growing 17.1 per cent YoY to Rs 59,263 crore compared with Rs 58,229 crore in the year-ago quarter.
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Also read: TCS Q4 results preview: Profit may grow 14-19%; order wins likely in $8.5-10 billion range
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