RIL, HDFC Bank, TCS: Which index heavyweight should you buy post Q1 result?

The earnings of the top three firms by market valuation—Reliance Industries (RIL), HDFC Bank and Tata Consultancy Services (TCS)—for the June quarter (Q1FY24) was a mixed bad. While energy-to-telecom major RIL reported a nearly 11 per cent fall year-on-year (YoY) in consolidated net profit at Rs 16,011 crore in Q1FY24, HDFC Bank and TCS posted 29.14 per cent and 16.84 per cent YoY growth in profit, respectively. Considering the results, analysts were divided on these blue chips. Here’s what they said:

Reliance Industries

Systematix Institutional Equities downgraded RIL to ‘Hold’ with a target price of Rs 2,550 (earlier Rs 2,766). In a report, the brokerage said RIL’s earnings are expected to remain tepid at 6.4 per cent CAGR during FY23-FY25 on the back of weak O2C and slower growth in consumer businesses.

“We keep our EBITDA estimates largely unchanged while cutting PAT estimates by 10 per cent and 8.6 per cent for FY24 and FY25 due to an increase in the effective tax rate (25.2% from the earlier estimate of 22 per cent). We downgrade the stock to ‘Hold’ from earlier ‘Buy’ due to sharp run-up in recent months,” the brokerage said. RIL’s shares rose nearly 9 per cent to Rs 2,536.20 till July 21, but they dipped 1.52 per cent to Rs 2,497.65 apiece in early trade on July 24.

On the other hand, Nuvama Institutional Equities has a ‘Buy’ rating on RIL with a 12-month target price of Rs 3,088. “RIL’s new energy shall unleash the next leg of growth opportunity. We keep estimates unchanged, but revise target price to Rs 3,088 from Rs 3,205 (strip off JFSL value of Rs 117 per cent share),” Nuvama said.

Watch: Reliance Industries share price falls 2% after Q1 results; should you buy RIL shares? See what analysts say

HDFC Bank

Analysts hold a positive view on HDFC Bank after its Q1 results, citing superior credit underwriting, structurally better net interest margins and the ability to maintain stable RoA post-merger.

Of late, the bank has also seen a smooth merger of HDFC with itself. “Marginal merger cost pressure may outweigh the cost to income owing to the procedure, but benefits will be realised in the long run. Deep penetration due to continuous branch addition will continue to strengthen the bank’s deposits growth strategy. Consequently, the bank will continue to get adequate deposits inflow along with the lowest cost of deposits among the peers’ group,” Sunidhi Securities & Finance said in a report.

“We maintain a positive bias on HDFC Bank due to net interest margins, which are likely to remain stable and return on assets (ROA) to be around 1.9–2.1 per cent,” the brokerage said. Shares of the private sector lender gained 4 per cent to Rs 1675.70 so far in FY24 till July 21.

IDBI Capital has a ‘Buy’ rating on HDFC Bank with a target price of Rs 2,050. “Post-merger, bank guided for the stability of RoA in the range of 1.9 per cent-2.0 per cent led by lower credit cost and operating efficiency although margins to get impacted. Banks focus on liability to support the margin improvement and PSL requirements in specified time duration,” IDBI Capital Markets said.

Watch: Dividend stocks: Adani Ports, Cummins India, Hero MotoCorp, Tata Motors, Ultratech Cement, IOCL among stocks that will trade ex-dividend this week; check details

Tata Consultancy Services (TCS)

ICICI Securities maintained a ‘Buy’ rating on TCS with a target price of Rs 3,780. Gross sales of the IT major increased by 12.55 per cent YoY to Rs 59,381 crore in Q1FY24. “We modestly tweak our estimates post Q1FY24 result and maintain our ‘Buy’ rating on the stock with a revised 12-month target price. Strong order booking momentum, large deal win announcements, macro recovery in key geographies like the US and EU, and release of pent-up demand in the coming quarters would help TCS get back to double-digit revenue growth in FY25,” ICICI Securities said.

Shares of the company rose 5 per cent to Rs 3,369 apiece till July 21 in FY24. According to Sharekhan, the demand environment continues to remain soft, and the robust order book and transformational deal win provided decent revenue visibility for the year ahead.

“We expect 6.1 per cent and 7.1 per cent sales and PAT CAGR over FY23-25. Despite the softness in the demand environment and likely challenges due to the CEO transition, we believe TCS is well-placed to capture opportunities arising from vendor consolidation, transformation deals and cloud services. Hence, we maintain a Buy rating on TCS with an unchanged target price of Rs 3,650,” Sharekhan said in a report.

Also read: Hot stocks on July 24, 2023: YES Bank, Suzlon Energy, Mazagon Dock, SJVN and more

Also read: Stocks that share market analysts recommended on July 24, 2023: Infosys, Coforge, Tata Communications, ITC