TCS share price jumps 2% on strong Q3FY22 revenue growth, may rally up to 30%; ‘buy’ TCS, say analysts

TCS share price soared over 2 per cent to Rs 3,944.40 apiece on BSE, a day after the IT bellwether posted a 12.36 per cent on-year rise in the consolidated net profit

Earlier on Thursday, TCS reported a 12.36 per cent year-on-year increase in its consolidated net profit to Rs 9,769 crore for the third quarter ended December 31, 2021, which boosted the stock’s value by more than 2 per cent to Rs 3,944.40 a share on the BSE. Aside from that, Tata Consultancy Services declared an interim dividend of Rs 7 per equity share, as well as the approval of a Rs 18,000 crore share purchase at a price of Rs 4,500 per equity share. The stock of TCS is now trading near its 52-week high of Rs 3,990.

Brokerage companies have advised investors to purchase TCS stock following the company’s financial reports for the three months ending in December, citing a potential gain of up to 30% from present levels. Analysts reported that TCS’ revenue performance was in line with expectations, but that the margin fell short of expectations. Analysts also feel that continuous hiring, as seen by the greatest net workforce addition in the company’s history in the third quarter, demonstrates the longevity of a robust demand environment.

Should you buy TCS stock post Q3 earnings?

Prabhudas Lilladher: Buy
Target price: Rs 4,468

 

Buy rating issued by the research company, with a target price of Rs 4,468 per share, representing a 15.75 percent increase over the stock’s last closing price. According to the company, TCS’ low attrition (when compared to rivals) is a competitive advantage in the present climate, where growth is controlled more by supply than by demand. In spite of the reintroduction of discretionary spending and supply-side cost pressures, we anticipate TCS will be able to maintain a 26 percent EBIT margin in FY23.” The company said that when supply-side challenges subside in FY23, “there is potential for margin improvement, which will be driven by lower subcontracting costs, enhanced pricing, pyramid optimization, the best-in-class supply-side engine, and revenue growth leverage.”

Kotak Institutional Equities: Add

Following strong revenue growth of 4 percent sequentially, which was ahead of expectations, the research firm maintained its add rating on the stock. As a result of the company’s position at the forefront of driving digital transformation for clients, it believes TCS is better positioned than peers to manage margin headwinds. EPS estimates for TCS for the fiscal years 2022-24 have been raised by 1-3 percent, according to Kotak. In the words of the research firm, “TCS has superior supply-side management, which will enable it to grow profitably.”

Motilal Oswal Financial Services: Buy
Target price: Rs 4,250

The stock, according to the research brokerage business, has a 10-percent upside potential, with a price objective of Rs 4,250 per share. The company feels that Tata Consultancy Services has achieved strong top-line growth in a quarter that was traditionally lower. In the company’s words, “we anticipate that this performance will assuage worries about its growth potential as well as the inevitable impact from an increasing number of smaller agreements in the market.” In a letter, Motilal Oswal Financial Services said that “given TCS’ size, skills, and portfolio breadth, it is well positioned to benefit the projected industry expansion.”

 

Edelweiss Research: Buy
Target price: Rs 5,000

Emkay Financial Services: Buy
Target price: Rs 4,150

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