A strong Q4 won't give TCS much of a lift

Mumbai: Analysts at brokerages expect limited upsides in shares of Tata Consultancy Services (TCS) despite the software services bigwig posting better-than-estimated profits in the March quarter as valuations are pricey.

JP Morgan said the stock is trading at 31 times the one-year forward price-to-earnings (PE) ratio - a valuation measure - which is an 11% and 8% premium to Infosys and Accenture, respectively. JP Morgan is neutral on the stock with a target price of ₹3,900, as it lacks triggers.

Highlighting a similar concern, Jefferies said TCS' premium valuation over Infosys, despite slower growth, may limit the upside.


Shares of TCS ended down 0.1% at ₹3,691.45 after touching a high of ₹3,738.60 during the day.

Maintaining a hold rating on TCS with a target price of ₹3,519, ICICI Securities said the company ranks better than peers on supply-side management, breadth of capabilities and deep domain capabilities, but the stock is trading at 28.3 times FY24 earnings per share which leaves limited room for upside.

Investec has a sell recommendation on TCS with a target price of ₹3,200, revised down from ₹3,215 as it believes the ongoing premiums on PE multiples are unlikely to sustain. TCS is trading at an 18% premium to Accenture despite revenue growth being 5% lower, said Investec.

Some brokerages have revised target prices up due to rolling forward estimates.

Jefferies has revised the target price to ₹3,925 from ₹3,870. CLSA has rolled forward the target price to ₹4,000 from ₹3,850 while retaining an outperform rating.

Analysts said low attrition and industry-leading profitability are positive factors about TCS.

Goldman Sachs has maintained a buy rating on TCS with a target price of ₹4,501. YES Securities has maintained buy and revised target price to ₹4,336 from ₹4,451 after reducing target multiple to account for the higher cost of capital going ahead.