TCS Gains Over Rs 500/Share In 12 Days; Time To Sell?

Shares of Tata Consultancy Services (TCS) opened at Rs 2,845 apiece on Tuesday, an over Rs 500 per share gain since 24 September, but some brokerages are expecting a further rise in the stock.

Timeline

24 September

TCS slipped over 5 percent after media reports suggested that the Tata Group may sell a portion of their stake in the IT company to buy Mistry family's stake after the group's second-largest minority stakeholder announced its exit. Tata Sons holds 72 percent stake in TCS but had made no disclosure of such plans in the affidavit submitted to the Court. Media speculation triggered a fall in share price, to close at Rs 2,332.25.

The decline was seen by some as a good opportunity to buy the stock.

1 October

TCS says its Board will consider interim dividend at its meeting on 7 October.

4 October

TCS says its Board will consider a proposal for buyback of equity shares.

7 October

TCS announces Rs 12 per share interim dividend and a buyback offer worth Rs 16,000 crore. The company said its Board has approved a proposal to buyback 5.33 crore equity shares, being 1.42 percent of the total paid-up equity share capital at Rs 3,000 per share.

The company reported a 6.7 percent sequential growth in profit in the September-ended quarter at Rs 7,475 crore. Consolidated revenue from operations for the quarter rose by 4.7 percent sequentially to Rs 40,135 crore, while the company registered a 4.8 percent quarter-on-quarter growth in constant currency terms and 7.2 percent in dollar revenue.

Share value closer to buyback price

The stock is currently trading less than Rs 20 per share away from the buyback price of Rs 3,000. The buyback price is generally set higher than the market price for obvious reasons.

ICICI Securities expect TCS to surpass the buyback price with a target price of Rs 3,300 per share. It has upgraded the stock from 'Hold' to 'Sell' as it expects the company 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.

HDFC Securities has an 'Add' rating on the stock with a target price of Rs 3,070 per share.

"TCS' industry leadership and gold standard in execution/scale will be supported by industry tailwind of core system modernisation by enterprises," the brokerage said.

On the other hand, Motilal Oswal has a target price of Rs 2,9000 on the stock with 'neutral' rating.

The stock has exceeded the target price set by many brokerages immediately after the company's Q2 financial results release.

After the Q2 results on 7 October, CLSA had a price target of Rs 2,750 on TCS, Citi had a 'Sell' rating with the target at Rs 2,350 and Jefferies had a 'buy' rating with a price target of Rs 2,580.

However, Macquarie had raised its target to Rs 3,030 per share with an "outperform" rating. "TCS' commentary on demand underscores our thesis of strong digital transformation," it had said a day after the Q2 results.

Disclaimer

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