Upcoming Tata Dividends: TCS Stock Jumps 4%, M-Cap Rises By 58,100 Cr After Q3; Buy, Sell Of Hold?

India's largest tech firm, Tata Consultancy Services (TCS) witnessed strong bulls on Friday after exceeding street estimates in Q3 of FY24. TCS share price zoomed by as much as 4.25% on BSE with an intraday high of Rs 3,897 apiece. The stock was slightly away from its 52-week high levels. Brokerages like Motilal Oswal and Elara Capital are optimistic about TCS share price as they raise their EPS targets. There is a potential upside of 14% to 19% in TCS with a target price between Rs 4,250 to Rs 4,430.

At the time of writing, TCS traded at Rs 3,890.05 apiece, skyrocketing by Rs 153.85 or 4.12% on BSE. TCS is the largest company in terms of market in the IT sector. Currently, its m-cap is over Rs 14,23,206.33 crore.

The m-cap has jumped by a whopping Rs 58,101 crore in a single day from m-cap of Rs 13,67,094.77 crore on the previous day.

The stock is currently a couple of rupees away from crossing a 52-week high of Rs 3,928.95 apiece.

In Q3FY24, TCS garnered a consolidated net profit of Rs 11,058 crore in Q3FY24, which was a mixed trend with a growth of 1.95% year-on-year but a decline of 2.5% quarter-on-quarter. However, consolidated revenue was at Rs 60,583 crore, rising by 4.04% YoY and 1.49% QoQ. In constant currency, TCS revenue growth was at 4% YoY. While EBIT margin expanded by 50 bps to 25% in the quarter. TCS's order book stood at $8.1 billion, while its book-to-bill ratio came in at 1:1.

Further, this dividend-paying Tata stock announced a host of rewards for its shareholders. The company will pay a hefty Rs 27 per share dividends in the first week of February. The total dividend payout includes Rs 9 per share third interim dividend and Rs 18 per share special dividend.

For the third interim dividend, TCS will turn ex-dividend on January 19, which is also the record date for determining eligible shareholders to receive Rs 27 per share dividends. Meanwhile, TCS said that the third interim and special dividend will be paid on Monday, February 5, 2024, to eligible equity shareholders of the company.

Should you buy, sell, or hold TCS share price?

Given its size, order book and exposure to long-duration orders and portfolio, Motilal Oswal in its review report said, TCS is well positioned to withstand the weakening macro environment and ride on the anticipated industry growth.

Motilal's note added, "Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios."

On the valuation, Motilal's note said, "We maintain our positive stance on TCS. Our TP of Rs 4,250 implies 25x FY26E EPS, with a 14% upside potential. We reiterate our BUY rating."

Meanwhile, in its research note, Elara Capital said, "TCS continues to be upbeat on revenue opportunity from g-AI, which has become a part of all client conversations and has opened up multiple revenue streams. TCS has launched AI Experience Academy to provide innovation and experimentation opportunities to associates on multiple Gen AI technologies. And it continues to deepen partnerships with hyperscalers. TCS is enhancing its existing products and platforms with a layer of AI on top."

Further, Elara's note added, "Per TCS, demand outlook can turn positive as investments in digitization currently lag requirement. With the supply-side situation easing, and pick up in Manufacturing, Energy-Resources, Life-Sciences, and consumer business group, investments are only awaiting consumer confidence to turn positive as and when signs of improving macro percolate."

Moreover, on the stock price, Elara's note said, "Overall, Q3 results were better than expected. We slightly raise FY25E EPS estimates 3-4% and roll-forward by a quarter. We raise TP to Rs 4,430 (from Rs 4,290) on Dec-25E EPS at unchanged 29.7x one-year forward P/E. Expect revenue/EBIT/PAT CAGRs for FY23-26E at 5.8%/9.0%/9.4%. We maintain BUY as TCS offers best earnings stability among peers, supported by margin resilience, strong delivery engine, robust partnerships with hyperscalers and sturdy deal wins."

On the other hand, Axis Securities has recommended to hold TCS shares. It said, "From a long-term perspective, we believe TCS has built a resilient business model by securing multiple long-term contracts with the world's leading brands. It has also established robust capabilities that will enable it to gain market share moving ahead. However, prevailing uncertainties in large economies continue to pose short-term headwinds to the company's growth prospects. Nonetheless, we believe discretionary spending will gradually increase with newer technologies
moving forward."

Accordingly, Axis note said, "We recommend a HOLD rating on the stock and assign a 25x P/E multiple to its FY26E earnings of Rs 162.55/share to arrive at a TP of Rs 4,075/share, implying an upside of 9% from the CMP."

However, Emkay Global has recommended REDUCE on TCS shares.

Emkay's note said, "While the revenue growth was aided by ramp-up of the BSNL deal in Q3, it was partly offset by persistent weakness in discretionary spending and reprioritization of client spends. Adj. EBITM expanded by 70bps QoQ to 25% vs our estimate of 24.7%, aided by operating efficiencies, lower sub-contractor expenses and currency depreciation. Deal intake moderated a bit sequentially, albeit remaining healthy with TCV of USD8.1bn; book-to-bill stood at 1.1x."

Lastly, Emkay's note added, "Deal wins were broad-based and dominated by cost optimization programs. Management remains watchful in the near term given macro uncertainties, and refrained from providing any timeline of recovery; but it expects acceleration in revenue growth once macro uncertainties recede. We cut FY24-26E EPS by less than 1.5%, factoring in the Q3 performance and EPIC legal case settlement. We maintain REDUCE with unchanged TP of Rs3,900/share, at 25x Dec-25E EPS."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.