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Why TCS stock fell in trade today after 24% rise in Q3 net profit

BusinessToday.In     January 11, 2019

The TCS stock fell in trade today after brokerages saw downside risks to its growth and margin pressure on the earnings before interest, tax, depreciation and amortisation (EBITDA) front. The large cap stock fell up to 2.76% to 1,836 level compared to its previous close of 1,888.15 on the BSE.

The stock is trading below its 50-day and 200 day moving averages of 1,935.23 and 1,973.46,  respectively.

The stock has lost 32.12% during the last one year.

Also read: TCS Q3 net profit surges 24% to Rs 8,105 crore, revenue highest in 14 quarters

The country's largest software exporter TCS Thursday reported 24.1 per cent growth in net profit at Rs 8,105 crore for the quarter ended December 2018. The company had posted a net profit of Rs 6,531 crore in the same period last fiscal as per Indian accounting norms.

The Tata Group firm, which accounts for the lion's share of the group's overall profit, reported a revenue growth of 20.8 per cent at Rs 37,338 crore for the said quarter, up from Rs 30,904 crore a year earlier.

However, brokerages were not upbeat about the Q3 performance of the IT major.

Morgan Stanley said earnings before interest and taxes (EBIT) margin posted by TCS was a negative surprise at 25.6 percent, missing the 26.8% it had estimated.

The international brokerage sees downside risks to margin expectations and raised concerns over the company indicating increasing cost of carrying out business in major markets and higher cost of subcontractors.

Margins fell 90 basis points quarter-on-quarter, largely because of increased investments related to employee costs/subcontractors the brokerage said adding its saw downside risks to its F20 earnings per share estimate and consensus.

Nomura gave a reduce call on the stock with a target price of Rs 1,780 and said risks that might impede achievement of the target price for TCS include deterioration in global macro, weaker-than-expected revenue growth, and failure in inorganic initiatives. The brokerage is cautious on the stock due to expensive valuations and said it saw margin pressure on earnings before interest and tax likely ahead.

Twenty three of 44 brokerages rate the stock "buy" or higher, 14 "hold" and seven "sell" or lower, according to analysts' recommendations tracked by Reuters.

Edited by Aseem Thapliyal


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