India’s largest IT exporter, Tata Consultancy Services, was already under pressure due to FII selling, attrition issues, salary hikes and moderation of growth in Europe. Additionally, its margins contracted in Q1FY23 and missed analysts’ estimates.
The IT major reported a 5.21% increase in its consolidated net profit at ₹ 9478 crores in the June quarter compared to ₹ 90,087 crores in the corresponding quarter last year. The company’s consolidated revenue for the quarter grew by 16.2% year-on-year to ₹ 52758 crores as compared to ₹ 45,411 crores during the same quarter a year ago.
The shares opened gap-down at ₹ 3206.15 apiece on Monday and they are currently trading at ₹ 3123.10 apiece, down 4.36%. So far, this year, the share price of the company has fallen by 18.17% amid broader market correction and worries about a looming global recession that could crimp IT spending.
TCS’s operating margin stood at a multi-year low of 23.1%, down from 25.5% a year earlier, mainly due to the impact of annual salary increases, elevated cost of managing the talent churn and gradually normalizing travel expenses. The attrition rate was at 19.7% and wage hikes impacted the Q1 EBIT margins negatively. However, the tech giant’s order book continued to be strong and its workforce crossed the 6 lakh mark.
The company recorded a double-digit growth across industries: Retail and CPG (25.1%), Communications & Media (+19.6%), Manufacturing vertical (+16.4%) and Technology & Services (+16.4%), BFSI (+13.9%) and Life Sciences and Healthcare (+11.9%).
The Mumbai-based firm has declared an interim dividend of ₹8 per equity share having a face value of ₹1 each to its shareholders. The record date to determine the shareholders who are eligible to receive the dividends is July 16, 2022, and the dividend will be paid on August 3, 2022.
Impact on the IT Pack
TCS was the biggest loser on the Nifty 50 index and it dragged down the indices with nearly a 5% fall followed by its other IT peers. Wipro slipped 2.16%, HCL Technologies contracted 3.20%, Tech Mahindra fell 2.45% on Monday and Infosys dropped 2.93%.
Targets
Edelweiss is bullish on the shares and has a target of ₹ 5,000. This suggests an upside of 60.10%.
Motilal Oswal sees a potential upside in the stock and has maintained a buy rating with a target price of ₹ 3730 apiece. This translates to an upside of 19.43%.
“TCS has consistently maintained its market leadership position and shown best-in-class execution. It allows the company to maintain its industry-leading margin and demonstrate superior return ratios,” the brokerage said.
Written By – Simran Bafna
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