TCS shares tank 7% post Q2 earnings; here's what brokerages say

Shares of TCS Ltd declined 7 per cent to hit an intraday low of Rs 3,660 on the BSE on Monday after the company reported its earnings for the second quarter of 2021-22.

The IT major on Friday reported a net profit of Rs 9,624 crore for the July-September quarter, recording a 14.1 per cent rise on a year-on-year basis. The company's revenue grew 16.8 per cent year-on-year to Rs 46,867 crore.

The stock opened 3.5 per cent lower at Rs 3,797 against the previous close of Rs 3,935.30. With a market capitalisation of more than Rs 13,00,000 crore, the shares stand higher than the 50 day, 100 day and 200 day moving averages but lower than 5 day and 20 day moving averages.

According to Kotak Institutional Equities, TCS is better positioned than peers to manage margin headwinds. The brokerage house has cut FY22-24 earnings per share estimates by 3-4 per cent. It has maintained an 'Add' rating on the stock with a target price of Rs 4,100.

Goldman Sachs said earnings were below estimates on revenue, margin and orderbook front. It has maintained a 'Buy' rating on the stock with a target price of Rs 4,657. The brokerage sees a strong deal pipeline given the strong underlying demand momentum.

ICICI Direct expects margins to improve by 190 bps over FY21-23E. "We value TCS at Rs 4,530 i.e. 34x P/E on FY23E EPS," the brokerage house said.

UBS has a target price of Rs 4,180 per share and expects shares of the IT company to consolidate hereon with a slight downward bias.

TCS Chief Executive Officer and Managing Director Rajesh Gopinathan said the company is using the growth tailwind to invest in "strengthening relevant capabilities" and building out a "comprehensive portfolio" of offerings. This, he said, will cater to a "broader set of stakeholders" in the enterprise across business cycles, strengthening its brand, and making the business more resilient.

According to MarketsMojo, the company has a low debt to equity ratio (avg) at -0.36 times. The technical trend has improved from 'Mildly Bullish' on August 3, 2021.

The stock is technically in a bullish range and multiple factors for the stock are bullish like MACD, Bollinger Band, KST, DOW and OBV. However, it noted that the valuation is very expensive right now.

The board of TCS also announced a second interim dividend of Rs 7 per equity share of the company.