Emkay Global has raised its FY21, FY22 and FY23 earnings estimates by 2.8 per cent, 4 per cent and 4.6 per cent, respectively, factoring in the Q3 beat.
“We believe TCS is poised to benefit from the acceleration in Cloud adoption and digital transformation opportunities, considering its end-to-end capabilities. However, valuations are rich. Maintain ‘hold’, with a target price of Rs 3,150 (earlier Rs 3,000) at 26x FY23E earnings,” Emkay Global said in its review.
Sentiment towards Indian IT stocks has improved, with the companies
benefitting from a pick-up in demand, advancement of digital transformation by clients, as well as increased deal wins.
Other brokerages have also raised their target prices. The average target price of 39 analysts, polled by Bloomberg, following the results announcement, now stands at Rs 3,320 per share.
TCS and RIL have been playing cat-and-mouse for quite some time, in terms of claiming top spot for India’s most valuable company (see chart).
However, between April and October 2020, RIL shares galloped after the company’s successful mega fund raising — the largest by any Indian corporate — wherein it sold stakes in its digital (Jio) and retail arms, and also issued shares through a rights issue (Rs 53,000 crore) to shareholders, aggregating over Rs 2 trillion.
While the stake sales helped investors arrive at market-driven valuations for the firm’s consumer businesses, the uncertain growth environment due to the pandemic saw increased demand for stocks such as RIL, which are perceived to be safe havens.
Since October, with reducing uncertainty over economic growth and earnings, RIL has underperformed the benchmarks, while TCS has gained on an improved business outlook.
Consequently, the gap between the two has narrowed. TCS is now about Rs 85,800 crore behind RIL in market value.
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