Global brokerages upgrade TCS, raise target price after Q4 results; time to buy?

Global brokerage firms reaffirmed their faith in India's largest software services exporter by revenue as they upgraded the stock. Some of them also raised their respective target price after the March quarter results.

Tata Consultancy Services (TCS) reported the strongest revenue growth in the last 15 quarters clocking a revenue growth of 2.4 percent QoQ. Though the EBIT margin of the company was marginally down at 25.2 percent against expectations of 25.7 percent.

Vineeta Sharma, Head of Research at Narnolia Financial Advisors in a note said that TCS has over the years outperformed Infosys for two basic reasons—higher sales growth and higher margins. TCS continues to command a higher margin though sales growth has become comparable.

Reacting to the results, Nomura upgraded the stock to buy while Morgan Stanley, Credit Suisse and Nomura raised their 12-month target.

The stock rose over 3 percent in the morning trade on April 15.

Here’s what global brokerage firms recommend on TCS after Q4 results:

Morgan Stanley: Equal-Weight| Rase target to Rs 1,980 from Rs 1,920

Morgan Stanley maintained its Equal-Weight rating on TCS after Q4 results but raised its 12-month target price of Rs 1,980 from Rs 1,920 earlier.

The results were largely in-line with Morgan Stanley estimates but better than the street estimates. The management sounded confident on FY20 prospects, which is an encouraging sign.

Morgan Stanley’s FY20 cc revenue growth of 10 percent remains unchanged. However, the margin may remain below the 26-28 percent aspirational band. The global investment bank kept EPS estimates for FY20 and FY21 largely unchanged.

CLSA: Buy| Target: Rs 2,460

CLSA maintained its buy rating on CLSA after Q4 results with a target price of Rs 2,460. It said revenue beat with margin defence and strong deal win along with a stable outlook were some of the key positives.

TCS showed continued growth acceleration in March quarter led by BFSI and retail segments, CLSA said. TCS continues to extract difficult-to-replicate economies, it added.

Credit Suisse: Neutral| Target: Raised to Rs 2,130 from Rs 1,900 earlier

Credit Suisse maintained its neutral rating on TCS after March quarter results but raised its 12-month target price to Rs 2,130 from Rs 1,900 earlier.

TCS displayed solid growth with a slight miss on the margins. Credit Suisse expects TCS to clock 11 percent growth in FY20. It lifted FY20/FY21 EPS estimates by 2-4 percent.

The global investment bank increased the target multiple to 21x from 20x on strong outlook. TCS valuations are steep but have cooled off from last year's near-all-time highs.

Nomura: Neutral| Target raised to Rs 1,925 from Rs 1,780

Nomura upgraded TCS to Neutral from Reduce earlier and raised its target price from Rs 1780 to Rs 1925.

There is a comfort on growth, but margin pressure likely. EPS estimates over FY19-21 increased by 1-3 percent. The global investment bank looks for $ revenue/EPS CAGR of 7.9/7.4 percent over FY19-21.

Nomura expects EBIT margin to fall from 25.7 percent in FY19 to 24.5 percent by FY21.