TCS M-Cap Crossed Rs 12 Trillion Mark On Company’s Q3 Show

As expected, the market reacted favourably to the stellar third quarter (Q3) performance posted by the Tata Consultancy Services (TCS) on Friday post market closing hours. Against the close of Rs 3,121 on Friday, the stock opened with a gap up opening at Rs 3,230, a gain of 3.50 per cent. This was the all-time high level for the stock. At this moment, its Market Capitalisation (M-cap) crossed the mark of Rs 12 lakh crore for the first time. However, at the close of market hours, the stock closed at Rs 3,170.45, still Rs 49.55 above its previous close, or up by 1.60 per cent.

However, its M-cap settled under Rs 12 lakh crore mark at Rs 11.89 lakh crore at the close. It is still at the number two position in the league table of top M-cap companies. The top position is still maintained by Reliance Industries (RIL). The RIL stock was down by Rs 34.70 (down 1.80 per cent) compared to its previous close of Rs 1,933.70 at Rs 1,899, at the close of market on Monday. It closed the Monday’s trading session with an M-cap of Rs 12.03 lakh crore. 

It may be noted that RIL stock has declined by more than 25 per cent from its September 2020 lifetime peak of Rs 2,369. The stock was in limelight then as the company could successfully place 35 per cent equity of its subsidiary Jio Platforms, to financial and strategic investors to raise more than Rs 1.50 lakh crore and make its parent RIL, a zero-debt company.

The basic difference between TCS and RIL is the equity capital (number of shares issued) of both the companies. The TCS has equity capital of 375.24 crore shares while the number of shares issued by RIL is almost double at 634 crore. However, looking at the Q3 performance of TCS, the brokerages are upbeat on the share price of the company.

Emkay Global Financial Services in its research note said, TCS reported strong revenue growth of 4.1 per cent on quarter-on-quarter (qoq) basis, while on year-on-year (yoy) basis its revenue grew by 0.4 per cent. beating our and consensus estimates. Despite salary hike impact, adjusted Earnings Before Interest and Tax (EBIT) margin expanded 40 basis points (bps) on qoq on the back of revenue acceleration, operating efficiencies and forex.

“We believe that TCS is well poised to benefit from acceleration in cloud adoptions and digital transformation opportunities, considering its end-to-end capabilities. However, valuations are rich. Maintain Hold with a TP of Rs 3,150”, Emkay said in its note.

Motilal Oswal Financial Services (MOFSL): Institutional Equity desk in its report said, TCS rich valuations are justified. “We believe IT Services has entered into a technology upcycle, led by cloud- and data-driven deals coming onto the market. Given TCS’ size, capabilities, and portfolio stretch, it is rightly positioned to leverage expected industry growth. While we remain positive on the company, we remain Neutral given the rich multiples”.

Institutional Research Desk at HDFC Securities termed TCS Q3 earnings as continued stellar performance and maintained ADD ratings based on positive commentary from the management, with a target price of Rs 3,435. 

In a research note prepared by Apurva Prasad and Amit Chandra, Institutional Research Analyst, HDFC Securities, said, “Management provided ‘double-digit’ outlook for 2021-22/CY21 and ‘sustainability of momentum’ for 3-5 years secular cycle of cloud adoption. Strong outlook for BFSI vertical (strongest-ever BFSI deal bookings), investments in hyper-scalers units, improving supply-side metrics (stronger linkages with revenue growth and an uptick in contextual masters), and lowest-ever attrition were other highlights”.