What should investors do with TCS post Q3 numbers, buyback announcement: Buy, sell or hold?

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Its consolidated revenue during the September-December period stood at Rs 48,885 crore, up 16.4 percent from the year-ago quarter

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Tata Consultancy Services (TCS) share price gained 2 percent in the early trade on January 13 after India’s largest IT services company reported better numbers for the quarter ended December 2021 and also announced an interim dividend and buyback of shares.

On January 12 Tata Consultancy Services reported a consolidated net profit of Rs 9,769 crore for the quarter ended December 2021 (Q3FY22), registering a 12.3 percent year-on-year (YoY) growth.

The company had reported a consolidated profit after tax (PAT) of Rs 8,701 crore in the corresponding quarter last year. In the September quarter, PAT stood at Rs 9,624 crore.

Its consolidated revenue during the September-December period stood at Rs 48,885 crore, up 16.4 percent from the year-ago quarter, with healthy double digit growth across business verticals, led by strong deal wins and an increase in digital spends by corporates.

USD revenue for the quarter came in at USD 6,524 million up 14.4 percent YoY and 3 percent QoQ.

Also Read – TCS Q3 results | Here are the key takeaways

The board of the company announced a buyback of shares valued at Rs 18,000 crore at Rs 4,500 per Share.

The company also declared an interim dividend of Rs 7.0 per share with a record date of January 7, 2022, and the payment date of February 7, 2022.

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Here is what brokerages have to say about the stock and the company post December quarter earnings:

Citi

Research firm Citi has kept sell call on the stock with a target at Rs 3,580 as Q3 earnings were largely in-line.

The deal TCV of USD 7.6 billion is largely in-line with prior 4-quarter average.

For FY22-24 the EPS estimates changed by 0-1%. It find consensus margin assumption of 26% for FY23 high, while buyback may support in near-term.

Goldman Sachs

Broking house has reiterated buy call on the stock with a target at Rs 4,747 buy as company has the lowest attrition in the industry.

It has the best capability to fulfil & capture growth potential as they see robust demand to continue in CY22 as well.

Morgan Stanley

Morgan Stanley has kept overweight call on the stock with a target at Rs 4,400 as company surprised on revenue growth after a gap of 2 quarters.

The Q3 revenue performance better than higher end of street expectations. The management commentary supported expectations of strong growth in CY22, while margin has disappointed, but is not a concern.

UBS

UBS has kept neutral call on the stock with a target at Rs 4,180.

The revenue was a beat, but margin miss offsets any earnings upsides.

Motial Oswal

Given TCS’ size, capabilities, and portfolio stretch, it is rightly positioned to leverage the anticipated industry growth.

TCS has consistently maintained its market leadership position and shown best-in-class execution. This renders the company with ample room to maintain its industry-leading margin and demonstrate the superior return ratios.

We maintain our positive stance on TCS, given its strong growth outlook. Our target price of Rs 4,250 implies 30x FY24E EPS, with a 10% upside potential. Maintain Buy.

Prabhudas Lilladher

We believe TCS can easily sustain ~26% EBIT margin in FY23 despite return of discretionary expenses and supply side cost pressures. As supply side pressures ease off in FY23, there is scope for margin expansion led by reducing sub-contracting costs, improved pricing, pyramid optimization, best-in-class supply side engine and leverage from revenue growth.

We increase our EPS estimates by ~1.6%/2.0% for FY23/24 led by marginal increase in revenue growth and EBIT margin. We project revenue growth of 16.3%/14%/11.4% in $ terms for FY22/23/24E respectively. We arrive at a DCF based Target Price of Rs 4,468 (implied earnings target multiple of 32x on FY24 EPS).

At 09:17 hrs Tata Consultancy Services was quoting at Rs 3,903.20, up Rs 45.95, or 1.19 percent on the BSE.

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