TCS nears $100 bn market cap after stellar Q4 results
NEW MILESTONE Shares rise 6.76% to touch record high of ₹3,421.25 apiece MUMBAI:
Tata Consultancy Services Ltd (TCS) edged closer to becoming the country’s first company to hit $100 billion market capitalisation on Friday after a stellar performance in the March quarter.
India’s largest information technology (IT) services firm’s market capitalisation reached around $98.75 billion, with the shares closing at ₹3406.40, up 6.76% on the BSE.
Shares of TCS rose as much as 7.2% during the day, touching a record high of ₹3,421.25 per share. So far this year, TCS shares have risen 26.4% and 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 have 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.
The company posted doubledigit growth in the March quarter after 13 quarters of underperformance. Investors also cheered after TCS announced bonus of 1:1 and recommended a final dividend of ₹29 a share. The company’s 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 20 basis points to 25.4% from 25.2% in the October-December period.
Most analysts have revised their earnings estimates and target prices upwards, 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. 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 April 19.
According to Edelweiss Securities Ltd, TCS has a definite possibility of double-digit revenue growth, on the back of robust deal wins in the banking, financial services and insurance (BFSI) sector. It said that with growth acceleration, scale up in digital and support from currency, margins are ready for uptick as well, implying return of double-digit revenue and earnings growth after three years while bonus share and 80-100% free cash flow (FCF) distribution is the icing on the cake.
“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 19 April.
HDFC Securities Ltd expects revenue and EPS to grow at a compound annual growth rate (CAGR) of 8.4% and 10.6%, respectively, based on dollar revenue growth of 8.5% for FY19. “The stock is fairly valued at 19.3 times,” it said.