TCS shares fall post Q4 results. Here’s what analysts say

Shares of Tata Consultancy Services (TCS) dropped nearly 2% in opening trade on Thursday after the IT major reported mixed financial results for the fourth quarter ended March 31, 2022. Most analysts that track TCS have kept their ratings unchanged after the Tata group company missed Dalal Street's estimates for the March quarter due to soft revenue growth in the backdrop of pause in discretionary spends. TCS shares have an average price target of ₹3,694, as per Trendlyne data, an upside potential of 14% from Wednesday’s closing price.

Reacting to Q4 results, TCS shares opened 1% lower at ₹3,210.05 against the previous closing price of ₹3,242.10 on the BSE. In the opening trade, the IT heavyweight fell as much as 1.8% to ₹3,183.15, while the market capitalisation slipped to ₹11.71 lakh crore. The shares of the country’s largest software exporter hit a 52-week high of ₹3,710.05 on April 13, 2022, while it hit a 52-week low of ₹2,926 on September 26, 2022.

The BSE IT index was the top laggard on the sectoral front with a loss of 1.2%, led by LTIMindtree, HCL Technologies, Infosys, Tech Mahindra, and TCS. Infosys shares shed nearly 2% in opening trade as investors turned jittery ahead of its fourth quarter earnings slated to be released today.

TCS, the country’s second most valued firm in terms of market capitalisation, has underperformed the BSE Sensex in the last one year by delivering a negative return of 12.5% as compared to 3.5% growth in the BSE benchmark. In comparison, the BSE Information Technology index fell nearly 18% during the same period. In the last six months, TCS shares have gained over 3%, while it fell nearly 2.5% in the last one month. In the calendar year 2023, TCS shares lost nearly 2%, while it dipped 1% in a week.

TCS kicked off March quarter earnings season by releasing its financial performance report post market hours on Wednesday. The IT giant reported a consolidated PAT of ₹11,392 crore in Q4FY23, up 14.8% year-on-year (YoY) and 5% sequentially, which was lower than average estimate of ₹11,530 crore. Revenue rose 16.9% YoY to ₹59,162 crore in the fourth quarter of 2022-23. The company’s operating margin for Q4 FY23 stood at 24.5%, while net margin came in at 19.3%. The board of TCS also declared a final dividend of ₹24 per equity share for the fiscal year. It has paid three interim dividends so far in FY23, aggregating to ₹91 per share. 

Here’s what analysts have to say on TCS Q4 results:

Domestic brokerage ICICI Securities has maintained “BUY” on TCS with a 12-month target price of ₹3,786, implying 17% potential upside from the current market price. The agency believes that TCS remains a defensive play in the current environment where they are gaining market share by aggressively winning cost optimisation deals (reflected in their strong deal TCV during Q4FY23). It also opined that TCS will be a strong beneficiary of pick-up in demand in FY25E as currently-postponed discretionary projects start getting executed. However, negative sentiment in the BFSI (Banking, Financial Services, and Insurance) and its impact percolating to other industry verticals like retail, hi-tech, remain key risks for the company going ahead, it said.

The brokerage has cut FY24E-FY26E Earnings per share (EPS) estimates by 1-2%, while it has retained revenue growth forecasts of FY24E/FY25E/FY26E at 7%/11%/12%, respectively, in constant currency (CC) terms. This is based on assumption that no recession in the U.S. or globally in the near to medium term.

Another brokerage Axis Securities said in a note that TCS’ revenue for the quarter stood slightly below expectations and showed a growth of 1.6% QoQ. “EBIT margins came flat at 24.5% QoQ and net profit for the quarter stood at ₹11,392 crore, reporting a revenue of 14.8% YoY,” said Omkar Tanksale, Senior Research Analyst, Axis Securities.

The analyst opined that growth in Q4 was led by Retail and CPG (+13%) and Life Sciences and Healthcare (+12.3%). “Other verticals grew in single digits. Technology Services grew 9.2%, BFSI grew 9.1%, Manufacturing grew 9.1% and Communications & Media grew 5.3%. On the deal side, the company posted an all-time high at $10 bn in Q4 FY 24. Total deal wins for FY 23 stood at $34.1 bn.”

SAMCO Securities said TCS has reported a muted quarter, with a mixed bag of numbers. Growth has been subdued for the quarter with the BFSI segment reporting single-digit growth and ending the year lower compared to the guidance.

“The company has not managed to sustain its margins, though, for FY23, we see a steep decline of around 200 bps. However, the order book of $10 billion is at an all-time high, indicating optimism about growth in the IT sector. With the substantial decline in attrition rate, operational costs optimised and the order book remaining strong, it remains to see how FY24 paves out,” said Urmi Shah, Research Analyst at SAMCO Securities.