Stock To Buy: Brokerage Bullish On This Tata Stock As Q2 FY23 Results Beats Estimates, Sees 12% Upside

Stock Outlook & Returns

The stock is currently trading at Rs 3,085.70 per share, 0.53% up from its previous close. The stock's 52-week high was recorded on January 17, 2022, at Rs 4,043 and its 52-week low was recorded on September 26, 2022, at Rs 2,926.10, respectively.

The stock has given 4.72% negative return in the past 1 month. Over a year, the stock has given 15.41% negative return. The stock has given 55.52% positive return in the past 3 years. It gave a multibagger return of 142.52% in the past 5 years.

 

Resilient Demand, Superior Execution Leads Encouraging Growth

According to the brokerage, "In Q2FY23, Tata Consultancy Services Ltd (TCS) reported revenue growth of 4.8% QoQ in rupee terms, beating our expectations. The company's revenues stood at Rs 55,309 Cr, up 18% YoY. It reported operating profits at Rs 13,279 Cr with Operating Margins at 24% (expanded 90bpsQoQ). This was on account of superior execution by the company and lower operating costs during the quarter. Attrition level remained elevated at 21.5%and continues to be of concern as this can affect the company's ability to seamless execute projects moving forward. The management commentary on the verticals such as BFSI, Hi-tech Media, Life Sciences, and Retail was positive and it expects the company to report double-digit growth in FY23. Deal-wins for the quarter continued strong and remained high at $8.2 Bn. Moreover, deal wins were spread across verticals and across geographies. The sales cycle and execution of smaller deals continue to be faster as compared to large deals. However, TCS expects technology spending to remain resilient and expects the secular tailwinds to drive healthy growth over the medium term."

Healthy and broad-based growth

TCS delivered broad-based growth in the majority of the verticals during the quarter. Life Sciences & Healthcare grew by 14.5% YoY, BFSI by 13.1% YoY, Manufacturing by 14.5% YoY, and Technological Services by 15.9% YoY. Furthermore, Communication & Media grew by 18.7% YoY and Regional Markets & Others, too, improved by 13.1% YoY. Moving forward, a positive growth trend is expected to continue supported by strong traction and a robust deal pipeline in the forthcoming quarters. On a geographical front, North America (54.3% of revenue) posted a healthy growth of 7.6%YoY, Europe (29% of revenue) grew by 14.5% YoY while India's business grew by 16.7% YoY. The company recorded a Free Cash Flow of Rs 10,062Cr in Q2FY23.

Outlook & Valuation

The brokerage said, "From a long-term perspective, we believe TCS has built a resilient business model by securing multiple long-term contracts with the world's leading brands. However, rising concern over uncertainties from the large economies and supply-side constraints may create uncertainties over the growth prospects of the company. We recommend a BUY rating on the stock and assign a 28x P/E multiple to its FY24E earnings of Rs 122.4/share to arrive at a TP of Rs 3,460/share, implying an upside of 11% from the Current Market Price."

Key points of concern

Rising attrition levels coupled with rising travel costs as well as subcontracting costs remain key concerns for the company. The discretionary spend cuts may arise due to economic uncertainties in the USA and Europe.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.