Shares of Tata Consultancy Services (TCS) slipped over 4 per cent in early trade today after the firm performed below expectations on both revenue and margins fronts in its June quarter earnings. Financial services firm Motilal Oswal said earnings before interest and taxes (EBIT) margins came at a multi-year low for the Mumbai-based firm. The IT stock was down 4.54 per cent at Rs 3,116.40 in early trade against the previous close of Rs 3,264.85 on BSE. Market cap of the firm fell to Rs 11.45 lakh crore on BSE.
TCS stock is trading lower than 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The share has lost 16.11 per cent in 2022 and fell 2.27 per cent in a year. The stock was trading nearly 3 per cent higher to its 52-week low of Rs 3,023.35.
The share opened at Rs 3,220 on BSE. Total 0.53 lakh shares of the firm changed hands amounting to a turnover of Rs 17.23 crore on BSE. The share hit a 52-week high of Rs 4,045.50 on January 18, 2022 and a 52-week low of Rs 3,023.35 on June 17, 2022.
Here's a look at what brokerages said about the prospects of the stock after its Q1 earnings.
Motilal Oswal has maintained its 'buy' call on the stock and sees an upside of 14 per cent to the price of Rs 3,265.
Motilal Oswal said, "We have tweaked our FY23/FY24 earnings per share by 4% to account for lower margins. We expect a USD revenue CAGR of 9.3% over FY22-24 and INR EPS CAGR of 13.1% during the same period. Our TP of Rs 3,730 implies 28 times FY24E EPS, with a 14% upside potential. We maintain our Buy rating on the stock."
Earnings before interest and taxes (EBIT) margins came at a multi-year low as they dipped 190 bps QoQ to 23.1% (vs.our estimate of 23.9%) due to elevated supply side pressure, added Motilal Oswal.
Brokerage firm Prabhudas Lilladher said the company has missed on both revenue and margins in the June quarter results.
Nomura has given a 'reduce' call on the stock with a target price of Rs 2,910. "The firm is facing brunt of weakening growth and margin headwinds and order book is showing signs of flattening," the brokerage said.
1QFY23 results were a miss on all fronts, Nomura said, adding that the firm's growth to lag Infosys. It lowered FY23-24F earnings per share by 1.4-2.5 per cent.
JPMorgan is underweight on the TCS stock with a target price of Rs 2,800. Earnings and margin trajectory don't stand up to burden of valuations, said JPMorgan.
Q1 of FY23 was underwhelming with in line revenues, a 60 bps margin miss and slowing deal win/hiring trajectory. JPMorgan cut margins by 30 basis points and earnings estimates by 2-3 per cent over FY23-25.
Citi has given a sell call on the stock. and cut its target price to Rs 3,015. Revenues were in line with estimates but the firm missed on the margins front. "With consensus FY23E/FY24E EBIT margins at 25%/25.5% (Citi: 23.7%/23.4%), we see downgrades ahead, " Citi said.
Santosh Meena, Head of Research, Swastika Investmart said, "TCS missed street expectations in Q1 earnings as margins are under pressure and the attrition rate is still high. However, the counter headed in its Q1 earnings with tepid expectations therefore there is no knee jerk reaction expected while buying can be seen at lower levels. Technically, the counter is still making lower highs and lower lows formation where a 50-DMA of Rs 3,333 is an immediate hurdle; above this, we can expect a short-covering rally towards the Rs 3,470- Rs 3,500 zone. It has to sustain above the 3500 mark for any major buying interest. On the downside, Rs 3,200 is an immediate support level; below this, it is vulnerable to a fall towards the Rs 3,000 mark. However, Rs 3,000 is a good level for fresh entry."
Tirthankar Das, Head of Technical Research, Ashika said, "The IT Index for the past six months had been on a corrective decline and in that space TCS continues to underperform with a fall of more than 22%. On the technical front, trend clearly remains in favour of the bears with consecutive lower low formation. Among oscillator, the daily 14 period RSI has recently generated a sell signal with neutral price reading of 41 (Weekly time frame) indicating room for further downside. To add further woes, presence of bearish 'Head & Shoulder formation in weekly time frame project downside target till Rs 2,750-2,760. However, amid all the pessimism sequential decline since March 22 seems to be part of the bullish harmonic group pattern ABCD which indicates that the stock might change direction at a price sustenance above Rs 3,000 which further coincides with the 38.2% retracement of the entire rally since Mar'20. Investors can accumulate the stock at dip towards Rs 2,900-3,000 to ride the next leg of up move towards Rs 3,500-3,700."
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