TCS top Nifty gainer after Q3 results, buyback announcement. Should you buy?

Market


Shares of Tata Consultancy Services (TCS) surged nearly 2% to 3,934 apiece on the BSE in Thursday’s early deals after the company’s net profit for the December quarter grew 12.3% from a year ago to 9,769 crore on the back of robust revenue growth of 16.3% to 48,885 crore. 

TCS said strong growth over the past four quarters helped it hit the $25 billion mark in revenue on a calendar-year basis. The board approved an up to 18,000 crore share buyback at 4,500. It has also declared a third interim dividend of 7 per equity share of 1 each of the company.

The company recorded a healthy growth however weak margins disappointed, analysts at Jefferies said. “While the buyback at 17% premium to CMP may be a near term catalyst, its rich multiples offer limited scope for rerating relative to its growth. Maintain Hold with target price of 4,180,” they added.

Stabilization of attrition as highlighted by management and normalization of subcontracting costs as net hiring catches up with demand is likely to keep margins in a narrow band of 25-25.5% over FY22-24, Jefferies added.

TCS margins fell 60 basis points (bps) to 25% on a sequential basis as lower employee costs  were offset by higher subcontracting and higher travel/pass-through costs.

Those at brokerage house Emkay said that Q3FY22 revenue exceeded their expectation, while EBITDA margin missed the estimate. It has maintained its Buy rating on the IT stock with a target price of 4,150 ( 4,100 earlier), considering steady deal wins and consistent execution.

“Despite the positive surprise on revenues, TCS’ 3Q results offer limited scope for earnings upgrades due to the margin disappointment,” Emkay’s note added.

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

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