Brokerages slash TCS target prices on tepid Q2 numbers; stock drops 3%

Global brokerage house slashed their target price for Tata Consultancy Services' (TCS) stock after the IT major on Thursday reported a tepid growth in net income for the September quarter at Rs 8,042 crore, and guided towards more challenges putting a big question mark over its ability to deliver the double-digit growth trajectory.

The scrip was trading 3.47 per cent down at Rs 1,934.75 in early trade on Friday, while the benchmark BSE Sensex was trading 229 points, or 0.61 per cent, higher at 38,109 at around 9.20 am (IST).

Bottom line of the company increased by 1.80 per cent YoY in Q2FY20, while topline of the Mumbai-based firm advanced 5.80 per cent YoY in the same period.

Haitong Securities cut the target price for TCS shares to Rs 1,925 (Rs 2,170 earlier) post Q2 results. “We were surprised by the quantum of the miss on both revenue and operating profit margin in Q2,” the brokerage firm said.

While maintaining a ‘Neutral’ rating on TCS, Credit Suisse also cut the target price to Rs 1,930 (from Rs 2,070 earlier). The brokerage house said that margin of 24 per cent is 110 basis points lower than Street estimates. Credit Suisse also trimmed revenue estimates by 1 per cent for TCS and earnings per share estimates by 5-7 per cent.

Another brokerage firm Citi maintained ‘Sell’ call on TCS with a target price of Rs 1,870. “Management comments suggest limited visibility in the near term,” it said. Citi lowered the target multiple to 21x from 22x given the growth and profitability challenges for TCS.

The IT behemoth declared a second interim dividend of Rs 5 and a special dividend of Rs 40 per equity share of Re 1 each of the company.

“We ended the quarter with steady growth despite increased volatility in the financial services and retail verticals. We remain confident as the medium and longer-term demand for our services continues to be very strong, as evidenced by our Q2 order book - the highest in the last six quarters,” TCS CEO and Managing Director Rajesh Gopinathan said.

The shares of the company closed 0.87 per cent lower at Rs 1987.05 on BSE.