TCS Q3 earnings: Can the Rs 75 dividend, December quarter results reboot the IT stock?

Analysts retained their bullish view on Tata Consultancy Services (TCS) for the long term after it reported an 11 per cent year-on-year (YoY) growth in profit at Rs 10,846 crore for the December quarter against Rs 9,769 crore in the corresponding quarter a year ago. Consolidated revenues for the quarter jumped 19.10 per cent YoY to Rs 58,229 crore from Rs 48,885 crore during the same period. On constant currency terms, revenues were up 13.5 per cent YoY. 

Earlier during the day, shares of the IT giant closed 3.35 per cent higher at Rs 3,319.70 ahead of Q3 results. On the other hand, the benchmark BSE Sensex settled 846.94 points, or 1.41 per cent, higher at 60,747.31 on January 9. Shares of the company are still down around 18 per cent from their 52-week high of Rs 4,045.50.

While sharing his views on TCS post-Q3 earnings, Kranthi Bathini, Equity Strategist, WealthMills Securities said, “Numbers came below expectations. However, there was no negative surprise in the December quarter earnings and the margin guidance stood intact. For the US, there is some uncertainty but the momentum is in line for the UK business. The majority of the revenue of TCS comes from North America and the UK, therefore a slowdown in Europe may not impact the company going ahead. We are bullish on TCS for long-term perspective.”

 Among major geographies, North America and the UK led the growth at 15.4 per cent each, Continental Europe grew at 9.7 per cent. In emerging markets, Latin America grew at 14.6 per cent, India at 9.1 per cent, Asia Pacific grew at 9.5 per cent and Middle East & Africa at 8.6 per cent.

“Movement of inflation and the US Fed decision will drive the overall market and TCS over the next 12 months. The IT major has managed to outperform markets in the long run. Therefore, we advised long-term investors to buy the stock on every dip,” said Bathini.

Meanwhile, the TCS board has also declared a third interim dividend of Rs 8 and a special dividend of Rs 67 per equity share.

Avinash Gorakshakar, head of research at Profitmart Securities told Business Today TV that the numbers are in-line with estimates and margins have improved from 24 to 24.50 per cent.

“Dollar revenue growth has also been pretty good. However, the net profit of the company came below expectations. The only thing which could be a booster to the stock is the dividend. Guidance given by the company showed cautious optimism from the management side,” he said.

Gorakshakar further said that management has highlighted that they are confident in the US market in terms of deals and growth. “We could not see re-rating in the stock in the near term. However, the value could come in the long term. There will be a rangebound movement in the stock in the near term.

Emkay Global Financial Services believes that the stock may react from ‘Neutral’ to ‘Positive’ on Tuesday. “Revenue beats our and consensus estimates in Q3FY23, while margin was a tad below expectations,” the brokerage said.