TCS shares continue to surge, most brokerage firms estimate stocks to move above buyback offer price

Information Technology giant Tata Consultancy Services’ (TCS) stocks zoomed during Monday’s session and ended the day at Rs 2,831 apiece. Shares of the IT firm have now clocked 21% gains since September 24. The company recently reported strong quarterly numbers and a healthy future outlook for the company, which has helped the stocks move higher. TCS has also announced an equity share buyback worth Rs 16,000 crore along with the quarterly results. The buyback will see TCS buyback 1.42% outstanding equity shares of the company at Rs 3,00 per share.

With the stock trading at over Rs 2,850 per share, the buyback price is now at only a marginal premium over the current price. A large number of brokerage and research firms expect the stock price to move past the Rs 3,000 mark in the near future and some expect a far greater return from the stock. “The company has seen healthy margin growth in Q2FY21 led by improving revenue growth and cost rationalisation. Going forward, we expect TCS to witness a healthy margin trajectory led by cost rationalisation, improving growth in high margin digital technologies, benefits of lower attrition and operating leverage benefit,” said analysts at ICICI Securities. They expect TCS to witness 80 bps on-year increase in EBIT margins this fiscal year. The brokerage firm has upgraded TCS shares from a ‘Hold’ call to a ‘Buy’ call with a target price of Rs 3,300 per share.

The IT industry, many expect, is set to witness massive digital adoption by enterprises across the globe. “ TCS’ industry leadership and gold standard in execution/scale will be supported by industry tailwind of core system modernisation by enterprises,” said HDFC Securities in a note. In the July-September quarter, TCS saw a high number of small and mid-sized deals enabling faster transition. HDFC Securities has an ADD rating on the stock with a target price of Rs 3,070 per share. Many analysts believe that the world is at the cusp of a multi-year digital transformation cycle. “In the current phase, enterprises are building a cloud-based foundation that will serve as a resilient, secure and scalable digital core. In subsequent phases, enterprises will see new age technologies developed around cloud to lead to new business models and differentiated customer experiences,” ICICI Securities said in a note.

TCS maintains its leading performance as a tier-1 IT giant that caters to various geographies across the globe, which attracts more investors towards it. “We believe TCS has a resilient business structure from a long term perspective and multiple long term contracts with world’s leading brands,” said Axis Securities. The brokerage firm assigned 27x P/E multiple to TCS’ FY23E earnings of Rs 116 per share taking the target price to Rs 3,100 apiece.

According to Maybank Kim Eng, TCS accounts for 15% of Indian IT services exports and could also reap benefits from investing in digital platforms and new markets like Japan, ahead of the curve. “Factoring the 2Q outperformance, we raise our USD revenue forecast by 2-3% for FY21-23. Maintaining our USD/INR at 75, we raise our INR revenue forecast by 2- 3%,” the global brokerage said in a recent report. It sees TCS trading at 30x FY21E P/E at +3SD above its 5/15-year mean. Upgrading the stock to a ‘Buy’ rating the brokerage has pinned a target price of Rs 3,400 per share on the stock.