CLSA and Deutsche Bank bullish on TCS shares after robust Q2 earnings

Global research and brokerage firms CLSA and Deutsche Bank are bullish on the shares of Tata Consultancy Services, after India’s IT bellwether posted its second quarter (July-September) earnings yesterday, which beat analysts’ expectations as consolidated profit rose, backed by robust volume growth and operational performance. CLSA has retained a buy call on the stock, increasing the target price to Rs 2,970, from the previous target of Rs 2,880. TCS shares continued to rise on Friday morning, and were trading at Rs 2,580.75 on NSE, up by more than 1.2% since the previous close. The revised target price implies an upside of more than 15% from the current market prices.

Deutsche Bank has retained a buy call on the shares with a target price of rs 3,000 from the previous target of rs 2,750, implying an upside of more than 16% from the current market prices. Deutsche bank says the robust earnings show indicate early signs of demand revival for TCS.

India’s largest software services exporter, Tata Consultancy Services (TCS) on Thursday reported a net profit of Rs 6,446 crore for the three months to September, an increase of 8.4% quarter-on quarter, beating analysts’ estimates. Operating margins stood at 25.1%, a good jump of 171 basis points sequentially. Bloomberg consensus estimates had forecast the IT major’s net profit at Rs 6,287 crore on revenues of Rs 30,508 crore.

CLSA says that margin recovery was the key positive takeaway from TCS’s quarterly earnings. Further, CLSA says that Q4 may offer better growth for TCS. However, the research firm pointed out that it was the third successive quarter of soft constant currency (CC) growth, impacted by softness in banking and financial services (BFS) and retail verticals.

Deutsche bank has increased the FY18-19 operating earnings forecast by 4-5%. Further, the global bank expects TCS to deliver 12.3% earnings CAGR over FY17-20. According to Deutsche Bank, the shares are attractively prices at 16 times FY19 earnings. TCS shares have returned a respectable 7% since january, at a time when the BSE IT Index has given abysmal 1.4% in the same period. Notably, the shares are up more than 4% in the last three months.

TATA Consultancy Services ( TCS )