Analysts views on TCS divided after slowest Q1

US brokerage JP Morgan maintained its ‘underweight’ rating on TCS and cut the price target citing rich valuations at a time the IT giant reported its slowest June quarter ever.

“Company witnessing near-term softness driven by uncertainty driving project pauses and deferrals,” said JP Morgan in a client note. “TCS trades at 25 times its one year forward PE while growing at 3% in FY24 puts valuation burden in stark relief.”

The foreign brokerage sees a nearly 21% downside in TCS’ share price after trimming its price target.

TCS shares advanced over 2.6% on the NSE to close at ₹3,344.50. It was the top gainer among the frontline stocks as the Street remained upbeat about the company’s long-term prospects despite near-term headwinds.

Of the total analysts tracking TCS shares, 25 of them have a ‘buy’ rating, 13 of them tell clients to ‘hold’ the stock, while 11 recommended ‘selling’ its shares.

The consensus price target increased marginally by 0.32% to ₹3,488.16 per share, Bloomberg data showed.

“The strong deal flow momentum, despite the uncertainty in the decision-making process, reinforces our positive stance on the sector,” said Nuvama in a client note.

The domestic brokerage raised its price target in anticipation that TCS will remain at the forefront when the demand scenario improves, as visible from the first quarter deal wins.

“Given revenue deceleration in FY24, impacted by cut in discretionary spending, is already known and priced in, we expect growth to bounce back in FY25, for the entire sector, driven by a sustainable strong demand environment,” said Nuvama whose target reflects over 21% from the current levels.

The company’s order book stood at $10.2 billion at the end of Q1, and the book-to-bill ratio stood at 1.4. This is higher than the order win of $10 billion in the last quarter.

More than 4.9 million TCS shares exchanged hands on the BSE and NSE, nearly three times its combined average volume for the last one month, exchange data showed.