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Tata Consultancy Services (TCS), the technology services giant from the Tata Group, released its September quarter results on Thursday, revealing a mixed bag of performance. While revenue met expectations in both US dollar and rupee terms, other key metrics fell short, particularly on the margin front. This prompted a flurry of responses from analysts, who offered their interpretations and recommendations on the stock's future trajectory.
Despite the miss on margins, the majority of analysts covering TCS maintained their bullish outlook on the company. A significant 30 out of 47 analysts kept their 'buy' rating, highlighting their continued faith in TCS' long-term prospects. A smaller group of 10 analysts opted for a 'hold' rating, while 7 analysts issued a 'sell' recommendation. These varying opinions reflect the diverse perspectives on the company's current performance and future potential.
The analysts' assessments were shaped by several factors, including the specific challenges TCS faced during the quarter. Brokerage firm Kotak Institutional Equities, while maintaining its 'buy' rating, acknowledged the quarter's miss on estimates, citing North America headwinds and margin pressures as contributing factors. Jefferies, another brokerage, proposed that the ramp-down of the BSNL deal could provide TCS the opportunity to improve its margins in the future, although it adjusted its estimates downward by 1% to 2% and expects a 11% compounded annual growth rate (CAGR) in TCS' earnings per share (EPS) from FY25 to FY27.
Other analysts, like HSBC, highlighted the quarter's 'rare miss' but pointed to potential silver linings. They noted the company's position as the best managed in the sector, a point reiterated by Motilal Oswal, which also expressed preference for TCS over its peers. Meanwhile, JPMorgan predicted a recovery in growth from financial services and tech in the second half of FY24, with the BSNL contract unwinding expected to contribute to a return of margins to traditional levels. This optimistic outlook led JPMorgan to propose using any significant correction in TCS to add to positions.
Despite the general bullish sentiment, some analysts held more cautious views. Morgan Stanley, for instance, predicted a weak near-term outlook for TCS but anticipated an uptick in demand in subsequent quarters fueled by macro improvements, continued recovery in the BFSI segment, and a stronger order book. Though remaining optimistic, ICICI Securities expressed concerns over the 'significant' margin miss and adjusted its FY25 and FY26 EPS estimates downward. Conversely, HDFC Securities adopted a more bearish stance, retaining its 'sell' recommendation and expressing a preference for Infosys within the IT sector.
The mixed performance in TCS' Q2 results has sparked a range of responses from analysts, revealing diverse opinions on the company's current state and future outlook. While the majority remain optimistic, some express caution about the company's near-term challenges. Ultimately, investors will need to weigh these varying perspectives and assess their own risk tolerance before making investment decisions.
Source: TCS Q2 Results: Analysts advise using any sharp corrections to add positions