Investors give thumbs-up to TCS Q1 results; stock gains

NEW DELHI: Tata Consultancy Services Ltd surged as much as 4.4 per cent in trade on Friday, a day after India's largest software exporter reported strongest growth in 3 years.

Revenue grew sequentially by 5.5 per cent to $3.69 billion in the quarter ended June, significantly faster than many analysts' expectations. Growth was strong across the verticals/service lines and Geographies and management expect sustained momentum across the board over next couple of quarters.

The management sounded confident of growing higher than the industry and indicated that the company has a robust demand pipeline across markets.

The financial performance has been rising high over and above peers at all parameter reflecting the delivery strength, lead in the fast growing Digital space, and focused client strategy along with disciplined marketing investments, say analysts.

"We believe it to continue to remain best player among the Tier I space to leverage the improving demand outlook also its strong volume confidence of over 16 per cent would keep it immune of any risk on sharp INR appreciation," Dolat Capital said in a report.

Brokerage firm maintain TCS as their preferred pick among Tier I IT players.

Deutsche Bank has raised the target price on TCS to Rs 3,100 from Rs 2,800; says it has maintained a 'buy' on the stock.

TCS has outpaced its peers on revenue and EBITDA growth in the last three years, which we believe is sustainable. TCS, with its superior market coverage across geographies, industry verticals and a wide array of services that it provides, is best placed to capture demand.

"A healthy pipeline, broad-based deal signings, initial signs of up-turn in discretionary spending and good traction in annuity, traditional and transformational business - all these factors have collectively lent confidence to the company in estimating FY2015 to be a better year than FY2014," said Ankita Somani, Research Analyst at MSFL Research.

"We continue to remain positive on for a longer-term perspective and believe that the stock will continue to command premium over peers for its consistent performance," she added.

Somani maintains 'Accumulate' rating on the stock.

Technical View: Chandan Taparia, Derivative Analyst, Anand Rathi

After hitting all-time high of Rs 2492 this month, TCS is consolidating in a range with the immediate support of Rs 2340 levels. It is somehow managing the strength as overall trend is the positive.

The stock has immediate support at around Rs 2340 and below that longs may liquidate the position. It may slip towards next major support of Rs 2,250 levels.

On the upside, immediate hurdle is the life-time high level. Above that a short covering move can be expected and a fresh rally cannot be ruled out in the stock towards Rs 2550-2600 and higher zones. Long traders should hold positions by hedging Rs 2,400-2,250 bear put spread.