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Brokerages cut TCS target price post September quarter results

Most analysts cut their target price on Tata Consultancy Services (TCS) after the company reported a softer-thanexpected set of numbers for the quarter ended September.

Citi has cut target price by 6 per cent to Rs 1,870. Credit Suisse, HSBC, Nomura, Phillip Capital and Investec Securities have cut target price by 2.1-6.8 per cent. Jefferies has cut target price by 8 per cent to Rs 2,300.

Shares of TCS ended down 0.9 per cent at Rs 1,987.05 after falling as much as 3.8 per cent intraday.

The country’s largest software exporter reported 0.6 per cent growth in revenue at $5,517 million for the September quarter compared with the expectation of 1.5-2.5 per cent growth. Keeping currency rates constant, it grew by 1.6 per cent, the lowest in two years. The operating margin (EBIT margin) was at 24 per cent, the lowest in eight quarters and below the 26.5 per cent margin in the year-ago quarter.

“TCS reported disappointing set of numbers, with revenue growth significantly below estimates. Major segments of BFSI, retail and manufacturing remained weak, so did the US geography,” said Phillip Capital.

The brokerage has maintained a buy rating on TCS. Valuations at 21 times FY21 price-to-earnings might appear expensive, but TCS is a fundamentally superior stock to own, the brokerage said.

Another brokerage Citi maintained a ‘sell’ call on TCS with a target price of Rs 1,870. “Management comments suggest limited visibility in the near term,” it said. Citi lowered the target multiple to 21times from 22 times given the growth and profitability challenges.

It is almost confirmed that the company will grow in single digits in FY20, but the company will continue to outperform Tier-1 peers on growth and margins in the medium term, said Jefferies.

Source: Economic Times