TCS investors lost ₹1 lakh crore in minutes due to fall in shares. should you buy

TCS’s consolidated net profit jumps in the quarter of September 2021 ₹9,624 crore from ₹8,433 crore in the year-ago quarter, aided by broad-based growth across geographies and verticals. Its EBIT margin improved 10 bps QoQ to 25.6%, while revenue grew 4% QoQ in constant currency (CC) terms.

Brokerage firm Motilal Oswal said, “TCS posted inline revenue growth of 4% sequentially in terms of CC. However, dollar revenue growth missed our estimate. EBIT margin was also lower than our estimate on supply side challenges ”

Given the absorption of incremental and operating leverage, 2HFY22 is seasonally strong for margin. However, Motilal said the management has indicated that margins may soften in the near future, owing to supply-side challenges. The brokerage has a neutral rating (Target Price.) as ₹3,770) on IT stock. This remains positive given the company’s strong growth outlook, but the high valuation leaves limited room for disappointment.

According to Milind Lakkar, chief human resource officer of the IT giant, TCS’ attrition rate increased to 11.9% from 8.6% in the June quarter, and is likely to continue at higher levels for the next two to three quarters.

Another brokerage firm Nirmal Bang said talent cost, cross-currency effect and investment have affected the potential increase in margins. It has a ‘accumulating’ stance on TCS shares with a target price of ₹3,772 per share.

“On the margin front, we are more optimistic as we believe cost pressures will peak in FY12 and ease in FY13, especially on account of pyramid restructuring (in FY12) 78,000 freshers are expected to be hired, doubling the number in FY21 and a number (much higher than what was directed for 3 months ago),” the brokerage note said.

However, Prabhudas Lilladher has a ‘Buy’ rating on TCS, with a target price of Rs. ₹4,113. The brokerage believes that low attrition (compared to peers) of TCS is a competitive advantage in the current environment where growth is constrained more by supply rather than demand.

Prabhudas Lilladher notes that demand is driven by three broad trends, which are growth in outsourcing, investment in building digital cores and the growth and transformation agenda.

Meanwhile, analysts at Yes Securities remain positive on the stock as a strong demand environment will help it post double-digit revenue growth for FY22/FY23. Deal bookings remain strong and will help sustain the growth momentum.

“There are near-term margin headwinds in this supply constrained environment. However, we expect it to maintain a steady margin of ~26%, aided by positive operating leverage. We maintain a BUY rating on the stock with a revised target price of ₹4,395,” the brokerage said.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.