TCS stock drops 3% as brokers turn cautious post Q2

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NEW DELHI: Shares of TCS dropped 3 per cent on Friday after a host of brokerages slashed target price of the stock after its second quarter results.

India’s biggest software exporter Tata Consultancy Services posted 22.57 per cent YoY rise in profit at Rs 7,901 crore for July-September. The numbers were largely in line with Rs 7,929 crore as estimated by analysts in an ET NOW poll.

The Mumbai-headquartered company had reported a net profit of Rs 6,646 crore for July-September last year.

Analysts said the company failed to deliver on the top line front. Revenue for the quarter under review rose to Rs 36,854 crore compared with Rs 30,541 crore in the same quarter of 2017-18.

The stock fell 2.76 per cent to hit a low of Rs 1,925 on the BSE.

Maintaining ‘outperform’ on the stock, Macquarie has cut target price to Rs 2,345 from Rs 2,350, to factor in lower other income. Credit Suisse has maintained ‘neutral’ on the stock with target of Rs 1,775, suggesting a potential downside of 10 per cent. Deutsche Bank has hold rating on the stock with a target of Rs 1,740. Citi has a target of Rs 1,885 on the stock.

“We retain our cautious call on TCS. Our expectation is growth would normalise from more than double digit levels in FY19F to 7-7.5 per cent in FY20F as FY19 had the benefits from bunched up deals (especially in insurance platform BPO) which might be difficult to replicate. Besides, the momentum seems to have tempered in manufacturing, communication and technology, all of which were growing at or above double digits to now single-digit growth in the range of 6-8 per cent,” said Nomura India.

The brokerage said the margin in FY19 will be aided by currency depreciation, but the trend is likely to be down, driven by pressures in legacy, largely optimised traditional levers and likely lack of sustainability of rupee benefits driven by competition and need to pass them on to clients and employees.

Source: Economic Times