While analysts stayed positive on TCS’ growth prospects, they see limited earnings upgrades for the stock from here on due to lack of positive surprises and expensive valuations.
JM Financial said the numbers were broadly in line with Street expectations, but they failed to excite the way that had done in the prior two quarters.
“Record order booking at $9.2 billion and strong hirings kept the promise alive for a FY22E rebound, but 4QFY21 results will limit the case for revenue/EPS upgrades. That itself may be a case for slight disappointment given the general expectation one had going into the results,” said JM Financial.
The brokerage has a price target of Rs 3,050 on the stock, compared with Rs 2,950 earlier. At 10.45 am, the stock traded at Rs 3,128 , down 3.50 per cent. The stock hit a record high of Rs 3,358.80 on Friday.
Antique Stock Broking has a ‘hold’ rating on the stock in the near term as it found the scrip relatively more expensive than Infosys.
“However, we remain constructive on TCS from medium to long term thanks to its ability to engage with large clients for their large transformation programs. We value TCS at 30 times forward PE on FY23 EPS at Rs 3,500, which is at 20 per cent premium to our average valuation multiple of large cap IT companies,” it said and raised its target from Rs 3,400.
Kotak said FY2022 will be a year characterized by the war for talent which will result in elevated compensation revision.
“TCS’ consistent people practices, timely onboarding of freshers, timely and predictable compensation revisions and tools for skilling and training holds in good stead and cushions inflationary impact. However, the challenge continues to be one of expensive valuations,” it said.
At 27.4 times FY2023, it sees upside limited for the stock.
“We maintain our ‘reduce’ rating. Our EPS estimate increased by 2-3 per cent per cent due to a change in rupee-dollar assumptions by Kotak’s economist. Fair value increases to Rs 3,250 due to roll over and after baking in EPS revision,” it said.
Among other brokerages, JPMorgan called it a strong quarter to end the year, while suggesting that revenues and margins were ahead of its estimates. Deal wins were strong at $9.2 billion, it said, while maintaining ‘overweight’ on the stock.
Credit Suisse said the IT major is well positioned for a robust FY22. It said that the Q4 performance was led by broad-based positive growth across verticals and geographies, while suggesting a target of Rs 3,750 on the stock.
CLSA has a target of Rs 3,560 on the stock, as it likes efficient cost management, healthy order book and an optimistic outlook. Margin resilience, CLSA said, surprised in Q4 and that margin defense should keep cash conversion healthy, CLSA said.
On Monday, TCS reported a 15 per cent YoY rise in net profit at Rs 9,282 crore on 1o per cent rise in revenues at Rs 44,636 crore. Margin at 26.8 per cent was higher than Street’s 26.6 per cent estimate.
In dollar terms, revenue grew 4.2 per cent in constant currency over the previous quarter to $5.99 billion, beating analysts’ estimates.
Edelweiss said that core transformation, cloud migration, data and application modernisation are likely to remain key drivers and the company is well positioned for a multi-year technology upcycle going ahead.
“A strong order book coupled with a robust pipeline is likely to impart strong revenue visibility going ahead, in our view,” it said while suggesting a target of Rs 4,176.
The Tata group company declared a final dividend of Rs 15 per share, taking its total dividend payout for FY21 to Rs 38 per share.
