Here's a look at what top brokerages have to say about TCS's June quarter numbers -
Motilal Oswal Financial Services
The brokerage notes that TCS' reported revenue in constant revenue (CC) / earnings before interest and tax (EBIT) / profit before tax (PBT) / profit after tax (PAT) declined 6 per cent /2 per cent /11 per cent /14 per cent YoY which was slightly below its estimates. However, it noted that the decline in numbers was not worrying given the unprecedented damage global economies have witnessed. "The management undertook the best possible efforts to optimise cost, which provided great comfort. Deal wins (+21 per cent YoY) were stronger than our expectations (USD5.5-6.0b). More importantly, continued traction in large deals, a healthy pipeline, and better resilience in Banking, financial services and insurance (BFSI) are encouraging factors," it said. The brokerage remains "NEUTRAL" on the stock.
posted a weak set of Q1FY21 numbers, the brokerage believes management’s outlook is encouraging led by three key areas - Transformation/upgradation of the core, which was stress tested with the surge in online activity triggered by covid-19, significant spurt in enterprise spends in improving the front-end consumer experience and spends by clients on developing zero-touch experience.
"While FY21 is likely to be a washout year for the tech industry from the growth perspective, we strongly believe enterprises will have to spend a lot more on technology to retain customers, fulfill their experience expectations, and upgrade the capacity of core infrastructure to handle the surge in online activity. TCS
with its 300K+ workforce trained in digital transformation & cloud will be a key beneficiary of this wave of spend. While in the near term the stock looks fairly valued at 23x FY22e the high growth momentum will sustain till FY24," the brokerage notes. It has maintained ‘BUY/SO’ on the stock with the target price of Rs 2,310.
It notes that the EBIT margin decline was below its as well as street estimates at 23.6 per cent which was mainly led by an increase in employee costs by 360bps (45.3 per cent of revenues, average 41 per cent of revenues). "While TCS will see declining FY21 earnings growth due to Covid-19 led business disruption, we expect it to bounce back to sustained double-digit growth from FY22 as it resumes market share gains. We have increased our earnings per share (EPS) estimates of FY22/23E led by revenue upgrade of nearly 2.5 per cent led by pent-up demand," it said.
The brokerage estimates a 6 per cent revenue decline in FY21E and 9.6 per cent growth in FY22E. It maintains a "Hold" rating on the stock with the target price of Rs 2,116.
It maintains "REDUCE" on TCS with the target price of Rs 1,980. "Valuations at >1SD levels more than adequately factor in the recovery trajectory, although the improving near-term visibility could keep the stock price elevated," the brokerage said.
The expectation of recovery in growth from 2Q (reversal of supply dent ~150bps) and BFSI vertical resilience and expectation of recovery trajectory in Europe are some of the key positives for the company. On the other hand, recovery lag in Retail & CPG vertical (sub-vertical impact), manufacturing vertical, and UK geography’s performance (BFS weakness), remain the key concerns.
Emkay Global Financial Services
TCS's June'20 quarter results missed both the street and Emkay estimates. Operational miss flowed through in terms of sharp miss in net profits. The company suggests that it expects 'path to growth' from September'20 quarter onwards and expects to hit Dec'19 quarter levels on revenues in rupee terms by Dec'20 quarter ('unchanged from the April commentary'). "We see marginal cuts to our FY21/22E EPS estimates driven by these results. We would expect the stock to react negatively to these results," the brokerage said.
It has a "Sell" rating on the stock with the target price of Rs 1,750. The stock trades at very punchy valuations of 26x/23x FY21/22E EPS of nearly Rs 84/95, respectively, it notes.