TCS shares rise 3% after Q1 show. Should you buy, sell or hold the stock?

While foreign brokerage Nomura maintained a ‘Reduce’ rating on the stock, Motilal Oswal and Nuvama retained their ‘Buy’ stance on the counter.

The technology major reported a nearly 17% year-on-year (YoY) rise in consolidated net profit for the June quarter to Rs 11,074 crore. Consolidated revenue increased nearly 13% YoY to Rs 59,381 crore. While the net profit was above the ET Now poll of Rs 10,890 crore, the revenue was tad lower than the estimated Rs 59,500 crore.

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

Here’s what top brokerages recommend on the stock following Q1 show:

Nomura: Reduce | Target Price: Rs 2,800
Nomura maintains a ‘Reduce’ rating for India’s largest IT company with a price target of Rs 2,800. TCS missed both revenue and margin estimates by Nomura in Q1. The order book is holding up, but near-term Tal visibility remains low, the brokerage said. Weak headcount addition persists, as attrition continues to moderate. Nomura said that the company is unlikely to hit a 25% EBIT margin in FY24.

Jefferies: Hold | Target: Rs 3,450
Jefferies has a ‘Hold’ recommendation on TCS for a price target of Rs 3,450. The brokerage firm in a note said that TCS’ Q1 revenues and margins were in line with its estimates while profits were ahead. Pressure across key verticals/regions weighed during the quarter gone by with demand uncertainties persisting. It sees limited scope for margins to expand in FY24.

Morgan Stanley: Equal Weight | Target: Rs 3,305
Morgan Stanley remains ‘Equal Weight’ with a price target of Rs 3,305. Q1 revenues missed consensus estimates slightly. Management commentary indicated limited near-term demand visibility despite good deal wins. Tight cost control to help margins, but the key driver will be revenue growth. Morgan Stanley sees downside risks to consensus estimates as well as P/E multiples.

Motilal Oswal: Buy | Target: Rs 3,790
MOSL largely maintained our FY24/FY25 EPS estimates. Its TP of Rs 3,790 implies 25X FY25E EPS (16% upside). It has a ‘BUY’ on the stock.

“TCS reported in-line revenue of $7.2 billion in 1QFY24, flat QoQ in constant currency (CC) and a tad below our estimate of 0.3% CC. Revenue growth was affected by broad-based demand weakness across key verticals (BFSI) and geographies (US),” it said.

Nuvama: Buy | Target: Rs 4,000
Nuvama has retained a ‘Buy’ recommendation on the IT bellwether stock for a price target of Rs 4,000.

Demand environment makes us stay positive. The strong deal flow momentum, despite the uncertainty in decision-making process, reinforces our positive stance on the sector. 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, it said.

TCS shall be one of the biggest beneficiaries of this demand, driven by its capabilities in winning transformational as well as cost takeout deals – as manifested in its deal-wins in Q1.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)