Several brokerages cut target price on Tata Consultancy Services by as much as 16% as software majors margins disappointed investors.The brokerages cut target price by 0.5-16%.
TCS operating margin fell 90 basis points from previous quarter to 25.6% in quarter ended December.
Shares of TCS fell 2.4% to 1,841.95 on Friday as a result, ending day near its intraday low.Sharp margin contraction by 90 bps qoq (quarter-on-quarter) disappointed, largely due to higher subcontracting charges.
Fewer mega-deals than in year prior, combined with signs of macro slowdown in US, can lead to slower growth in FY2020, said Kotak Institutional Equities, retaining reduce rating due to stretched valuations.The brokerage has cut earnings per share estimate for FY19-FY21 period by 2-3% and trimmed margin assumptions by 70 basis points to 90 bps.CLSA has cut margin estimates by 60-70 bps to reflect growth-margin trade off.Brokerages also believe that premium that TCS trades at is substantial and there are risks related to macro and currency factors.The steepest c ut in target price came from Investec, which slashed target price by nearly 16% and trimmed EPS estimates for FY20 and FY21 by 3.3-3.5%.While cutting target price by 3% on TCS, Jefferies has maintained buy rating on stock as it believes that company is best placed to deliver double-digit revenue growth over FY19-FY21 among tier-1 IT companies.CLSA believes that good deal-wins, expansion in scope, solid execution and strong commentary suggest TCS is likely to retain growth leadership into FY21.
We expect it to fully exploit strong demand and gain share from its unique position, said CLSA, retaining its buy recommendation.