TCS Shares Rise Nearly 3% After Q1 Results Meet Market Expectations

Tata Consultancy Services (TCS) shares rose nearly 3 per cent in Thursday’s early trade after the IT major reported a higher-than-estimated June quarter profit on Wednesday.

TCS reported a 16.84 per cent year-on-year (YoY) increase in consolidated net profit to Rs 11,074 crore for the June quarter of fiscal 2024. In the corresponding quarter last year, the company reported a profit of Rs 9,478 crore. Sequentially, the net profit declined 2.8 per cent.

Consolidated revenue rose nearly 13 per cent YoY to Rs 59,381 crore from Rs 52,758 crore in the same quarter last fiscal. On a sequential basis, revenue increased 0.5 per cent.

In Thursday’s trading session, the stock opened at Rs 3,276 per share on the Bombay Stock Exchange (BSE).

At 11:00 AM, the stock was trading 2.88 per cent high at Rs 3,353 on the BSE.

The company board also approved an interim dividend payout of Rs 9 per share.

The IT major’s operating margin dropped by 130 basis points (bps), from 24.5 per cent in March quarter of FY23 to 23.2 per cent in June quarter of FY24.

"We remain confident in the longer-term demand for our services, driven by the emergence of newer technologies," said K Krithivasan, Chief Executive Officer and Managing Director of the company.

"We are investing early in building capabilities at scale on these new technologies, and in research and innovation, so we can maximize our participation in these opportunities," he added.

“The stock post the decent result announcement has indicated a positive bullish candle with a trend reversal from the confluence of significant moving averages of 200 period MA and 50EMA near 3260 levels to improve the bias and has scope for further rise in the coming days. The initial near-term target can be expected near 3400 and thereafter with further strength sustained can carry on the momentum till 3580-3640 levels. The support can be maintained near 3260 zone,” said Vaishali Parekh, Vice President - Technical Research at Prabhudas Lilladher Pvt. Ltd.

Wage hikes and increases in certain cost overheads weigh on the profitability of TCS. Nearly 55 per cent of the company’s workforce has started working from the office thrice a week.

The attrition rate continued to decline, with the 12-month trailing attrition rate coming in at 17.8 per cent, compared to 20.1 per cent a quarter ago.

 "TCS officially set-afire the ceremonial starters pistol for the Q1 earning season. It looks like the results beat the street estimates. Overall it has performed well despite industry faces mounting macroeconomic headwinds leading to a lower demand environment from the western economies, said Prashanth Tapse, Senior VP Research at Mehta Equities Limited.

"We remain positive on the sector as we believe the worst is behind us," he added.

JP Morgan has cut the target price for the stock to Rs 2,650 from Rs 2,700 while retaining its ‘underweight’ call to factor in the subdued earnings. The brokerage firm also highlighted that the company was witnessing near-term softness driven by uncertainty due to project pauses and deferrals.

Foreign brokerage Nomura maintained a ‘Reduce’ rating on the stock with a price target of Rs 2,800. Nuvama Institutional Equities and Motilal Oswal Financial Services retained their ‘Buy’ stance on the stock.

"Given its size, order book and exposure to long-duration orders and portfolio, TCS is well positioned to withstand the weakening macro environment and ride on the anticipated industry growth," the Motilal Oswal wrote in its report.