Mumbai: Shares of India’s biggest IT firm Tata Consultancy Services Ltd on Wednesday surged over 3% to hit a record high after the company reported better than expected June quarter earnings. The stock touched an all-time high of Rs 1,935 a share and rose as much as 3.1% in intraday trading. At 10.20 am, the scrip was trading at Rs 1,934 on the BSE, up 3% from its previous close.
Nomura Research and Kotak Institutional Equities have retained their “reduce” ratings on the stock, citing expensive valuations. The TCS scrip has gained over 40% since January.
“TCS’ Q1 results were ahead of expectations on revenue/margins, positive on the rebound in BFSI, and the commentary suggested a better growth outlook. The company indicated a better outlook in BFSI, continued traction in retail, and it retained its aspiration of 26-28% EBIT margins. However, the stock up-move of 40%, year to date, largely builds in the positivity. We find the valuations expensive at 23x FY20F EPS,” Nomura said in a note to its investors.
Brokerage firm Kotak Institutional Equities reckons TCS is on track to achieve 10% constant currency revenue growth in FY19. “Even as we like the success in platform bets and integrated digital programmes, we struggle to justify punchy valuations of 21X FY20E earnings. We raise our EPS estimates by 3-5% for FY19-21E on the back of revisions to INR/USD assumptions,” the report said.
TCS on Tuesday reported a 24% profit rise, the fastest pace in two years, to Rs 7,340 crore due to robust growth in banking, financial services and insurance and the North American operations. Revenue grew 16% to Rs 34,261 crore.
The TCS management said the recovery was broad-based across small and large clients and across different sub-segments within BFSI and confirmed a better medium-term outlook for the vertical. TCS posted 4.1% sequential constant currency growth to clock $5.05 billion in revenue in the June quarter
On an overall basis, the company’s management indicated an improved outlook on return to double-digit year-on-year growth helped by non-RFP based transformational deals, better visibility in BFSI and continued momentum in Europe/UK. TCS also reiterated its target of 26-28% EBIT margin citing favourable currency and better revenue growth as tailwinds.
Brokerage firm Jefferies India has increased its constant currency growth estimates to 10-11.5% over FY19-21 against 8.5-10% earlier and factors 4-6% and 9-13% increase in rupee revenue estimates and EBIT margins, respectively, due to a weaker rupee.
Jefferies increased its price target to Rs 2,140 and upgraded the stock to buy from hold. “We believe the valuation premium to peers is justified by better growth visibility/outlook as it is the only Tier-1 IT company in our coverage with double-digit growth over FY19-21E. High FCF/dividend yield, USD exposure and sector leadership support the valuation on an absolute basis,” Jefferies added.
Of the analysts covering the stock, 23 have a “buy” rating, 20 have a “hold” rating, while eight have a “sell” rating, shows Bloomberg data.