TCS gains 4% in three days, hits 13-week high; stock nears record high

Shares of Tata Consultancy Services hit a 13-week high of Rs 3,824.85, up 2.3 per cent in Monday’s intra-day trade, gaining 4 per cent in the past three trading days on the BSE. The stock of the information technology (IT) consulting & software major was quoting at its highest level since October 8, 2021, when it had hit a record high of Rs 3,990.

TCS on Friday, December 31, 2021, announced that the meeting of the board of directors of the company is scheduled on January 12, 2022 to consider and approve its audited financial results for the quarter and nine months ending December 31, 2021.

The board will also consider declaration of a third interim dividend to the equity shareholders. The company has fixed January 20, 2022 as the record date for the purpose of payment of the third interim dividend, if declared.

In the past three months, TCS (up 2.5 per cent) has underperformed its peers Infosys (up 14 per cent), Wipro (13 per cent) and Tech Mahindra (30 per cent) by a wide margin. This should reverse as peer growth starts to normalize, aided by increased aggression from TCS to gain market share, according to analysts.

"The IT services industry should see acceleration in growth from multi-year cloud upgrade cycle. TCS is among the best positioned to benefit from this uptick. It should gain given its strong organic capabilities, diverse presence, deal win momentum, and strong headcount additions. It should also benefit from its superior ability to manage talent supply challenges", said Motilal Oswal Financial Services.

The brokerage firm expects TCS to benefit from the sustained growth given its strong organic capabilities, diverse vertical and geographic presence, deal win momentum, and strong headcount additions.

"We expect TCS to report a 3.5 per cent QoQ CC revenue growth, backed by deals it has won in the last 12 months. We think FY22 total contract value (TCV) for TCS will moderate significantly from the 17 per cent growth seen in FY21 as the base year had a fair number of mega deals. This should be the harbinger of revenue growth moderation in FY23 from a 15.7 per cent growth that we are likely to see in US$ terms in FY22. We are sure that even TCS has been a beneficiary of short-cycle deals that get executed within the quarter," said Nirmal Bang Equities in its December quarter (Q3FY22) result preview.

December is a seasonally weak quarter impacted by furloughs. We expect modest sequential revenue growth of 2.6 per cent. Growth will be broad-based. We expect moderation in year on year (yoy) growth as the benefits of a low base fade away. We forecast sequential and yoy decline in EBIT margin courtesy of increase in discretionary costs and high cost to backfill attrition. We expect US$7.5 billion of TCV powered by mid-sized deals, Kotak Institutional Equities said in its IT services sector update.

The brokerage firm expects investor focus on reasons for relative underperformance in growth rates, reasons for lack of large deal momentum and the best way to read-through TCV signings, duration over which supply-side challenges will persist and measures to manage the same, levers to defend margins and timeframe when EBIT margins will hit 26-28 per cent band, durability of growth and magnitude of opportunity from the aggressive cloud shift by clients, and indications on IT spending for CY2022E and whether it syncs with the optimism demonstrated by industry analysts.