TCS share price trades flat post Q1 earnings; here's what brokerages say

Share price of Tata Consultancy Services (TCS) was trading flat after the  IT firm reported a 13.8 per cent year-on-year decline in its consolidated net profit for quarter ended June 31, 2020. TCS share price was trading 0.56% lower at Rs 2,192  against previous close of Rs 2204 on BSE. It hit an intra day high of Rs 2,222, gaining 0.81% and intra day low of Rs 2178 during early session.  The large cap stock has gained after 2 days of consecutive fall.

The share trades higher than 20 day, 50 day, 100 day and 200 day moving averages but lower than 5 day moving averages.  The share traded 4.38% away from record high of Rs 2,301 today. Market capitalisation of Tata Consultancy Services (TCS) stood at Rs 8,21,059 crore.

Net profit came in at Rs 7,008 crore for the first quarter ended June 30, 2020 (Q1 FY21) as business was disrupted by coronavirus pandemic.

In Q1 of 2018-19, the firm reported  profit of Rs 8,131 crore. The IT firm reported 0.4 per cent growth in consolidated revenue at Rs 38,322 crore in Q1 FY21 compared to Rs 38,172 crore in Q1 FY20. Revenue in constant currency terms fell 6.3 per cent YoY.

Jyoti Roy, DVP Equity Strategist at Angel Broking said,"While the Q1FY21 numbers were below street expectations on all counts, new deal wins remained strong at $6.9bn for the quarter which was a key positive. Markets will also look forward to management commentary and their outlook for the rest of the year."

TCS Q1 results: Profit falls 14% to Rs 7,008 crore; revenue rises marginally

Industry wise, revenue growth for FY20 was led by life sciences and healthcare business, which continued to grow strongly at 13.8 per cent YoY. Other than that, all other industry verticals showed declines of varying degrees: BFSI (-4.9 per cent), Retail & CPG (-12.9 per cent), Communications & Media (-3.6 per cent), Manufacturing (-7.1 per cent) and Technology & Services (-4 per cent).

Macquarie downgraded the share to neutral from overpriced and gave a target price of Rs 1,900. Growth recovery will be gradual given uncertainties in key verticals such as retail, BFSI and Manufacturing. Drag on margins will remain till growth recovers. The brokerage expects EBIT margins to decline 80 bps in FY21 and improve 160 bps on FY22.

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Morgan Stanley said F1Q21 revenue trajectory was weaker than expected due to some lingering supply-side issues. Margins were weaker too due to revenue impact. However, management said growth could return in F2Q, which could lift sentiment across other IT stocks.  The brokerage is equal weight on the stock with target price of Rs 2,125.

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Kotak Institutional Equities said key highlight in Q1 was a strong 21% YoY growth in new deals. Struggle to justify stock's punchy valuations. The brokerage cut FY21-23 EPS estimates for TCS by 2-4%. It maintained reduce position on the stock with a target price of Rs 2040.