TCS market value nears $100 billion on Q4 results

Shares rise 6.76% on the back of double digit revenue growth

MUMBAI: Tata Consultancy Services Ltd (TCS) on Friday edged closer to becoming the country’s first company to hit a market capitalisation of $100 billion after the information technology (IT) services firm posted a stellar performance in the March quarter.

Shares of India’s largest IT services firm closed 6.76% higher at ₹3,406.40 on BSE, taking its market value to around $98.75 billion. TCS shares touched a record high of ₹3,421.25 per share during the day, rising as much as 7.2%, and adding around ₹41,300 crore to the company’s market capitalisation. So far this year, the TCS stock has risen 26.4%, while the BSE IT index has gained 18.2%, which makes it the best performing index in India at current levels.

Following the rise in TCS shares, India’s top five technology companies added a combined nearly $10 billion or ₹64,390 crore to the their total market value. Infosys Ltd accumulated ₹10,000 crore, Wipro added ₹3,053 crore, HCL Technologies Ltd ₹6,600 crore and Tech Mahindra ₹3,500 crore.

TCS posted double-digit revenue growth in the March quarter after 13 quarters of under-performance. The firm also announced a 1:1 bonus issue and recommended a final dividend of ₹29 a share. Dollar revenue increased 3.9% (2% in constant currency terms) to $4.97 billion in the quarter. Net profit improved 5.7% to $1.07 billion in the March quarter from $1.01 billion in the preceding three months while operating margin improved to 25.4% from 25.2% in the October-december period.

Most analysts have raised their earnings estimates and target price for TCS, factoring in the March-quarter earnings. “Led by dollar revenue upgrade and modest rupee reset to lower levels, we upgrade our earnings per share (EPS) estimates by 1.4% and 2% for FY19 and FY20 to ₹149 and ₹161 per share respectively. Stock trades at 19.8 times FY20 EPS. TCS is currently trading at par with Accenture on the valuation front. Uptick in revenue trajectory leads to us re-rate multiples. We value TCS at 21 times FY20 EPS which yields a target price of ₹3,380 per share. This represents a 20% upgrade in our target price,” said Prabhudas Lilladher Pvt Ltd in a note on 19 April.

According to Edelweiss Securities Ltd, TCS has a definite possibility of double-digit revenue growth with robust deal wins in the banking, financial services and insurance sector. “However, current valuations at 19.2 times FY20 EPS offers limited upside. But, we do not see downside to the stock despite high multiple due to sector tailwinds and high cash returns,” it said in a note on April 19.

HDFC Securities Ltd expects revenue and EPS to grow at an annualised 8.4% and 10.6%, respectively, based on dollar revenue growth of 8.5% for fiscal 2019.

Goldman Sachs has tweaked its FY19-21 EPS estimates at 1% and maintained its “neutral” rating on TCS, saying its early lead in digital technology with wide scope and scale of domain expertise positions it well for 9% revenue CAGR over FY18-21, but valuations at 20.8 times FY19 versus EPS CAGR of 11% over FY18-21 largely captures this strong growth.

“Our view on TCS sustained financial outperformance get further reinforced post the management commentary on improved deal signings, broadbased growth performance, and company’s emerging supremacy in Digital business” said Emkay Global in a note to investors. The brokerage revised its earnings estimates by 1% and 3% for fiscal years 2019 and 2020 respectively and maintained its “accumulate” rating on the stock with a target price of ₹3,330.

According to Credit Suisse, TCS continues to execute solidly for a company of its size.