India's largest IT company, Tata Consultancy Services (TCS) reported quarterly numbers that were largely in line with estimates. We tell you if you should buy the stock of TCS, post the numbers. We have not analyzed the same ourselves, but, have picked the same from the report of broking firm Motilal Oswal.
Valuations factor in performance
According to Motilal Oswal Institutional Equities the current market price of TCS factors in all the things, which has led to the broking firm giving a neutral rating on the stock.
"Tata Consultancy Services (TCS) reported revenue growth of 2.4% QoQ CC in 1QFY22, below our estimate of 3.6%. This was primarily due to sharp degrowth in its India business (-14.1% QoQ) on account of the second COVID wave.
Excluding the impact in regional markets, core business growth of 4.1% QoQ CC was broadly in-line. The EBIT margin at 25.5% (marginally above our estimates) declined 130bp QoQ, primarily due to annual wage hikes (170bp impact)," the broking firm has said.
Spending environment remains positive
According to Motilal Oswal Institutional Equities, the consistent performance from TCS, post the initial phase of the COVID pandemic, indicates continued strength in the tech spending environment, along with its ability to capture outsized market share.
"Management commentary on enterprise demand, especially cloud, implies a positive outlook for peers as well. We see LTM attrition increasing 140bp QoQ as an indication of elevated supply constraints in the industry and expect this to be visible in TCS' peers as well. Additionally, the company's hiring streak has continued (the highest ever net employee additions of 20.4k QoQ / 65.3k YoY), indicating a robust demand environment. It further instills the confidence that this trend would persist," the broking firm has said.
Motilal Oswal has accorded a neutral rating to the stock price of TCS. "We have marginally changed our EPS estimates. While we continue to be positive on the company, we remain Neutral on the stock given the elevated multiples. Our target price of Rs 3,400 implies 27x FY23E EPS," the broking firm has said.
The above report is for informational purposes only. Any losses caused as a result of a choice based on the preceding content are not the responsibility of the author or Greynium Information Technologies. As a result, investors should proceed with care, as markets have risen dramatically. Please seek the advice of a professional expert.