Shares of India’s largest information technology (IT) exporter TCS jumped 8% intra-day on Friday to ₹1851.85 before rising 5.32% to close at ₹1806.8 in a firm Mumbai market on Friday even after its announcement of a marginal dip in profits on Thursday evening.
Brokerages believe that TCS is better placed than its peers to tackle the challenges of COVID-19 even as the company’s management indicated impact on demand in the first quarter with revenue contraction akin to the global financial crisis (GFC).
TCS still expects Q3 FY21 estimated revenues to match Q3 FY20, partly helped by record high deal TCV in Q4 of $8.9 billion. The company also expects margin to revert to 25% by 4QFY21.
“We maintain our buy rating on TCS given strong franchise which we believe will help it gain market share during the current downturn and defend margins better. We expect lower revenue and earnings volatility for TCS than many other market leaders across sectors. Near-term stock price weakness provides good opportunities for investors to get into a strong long-term franchise in our view,” Jefferies Equity Research said in a note to its clients.
The analysts are betting on TCS due to better resilience on growth and margins compared to peers in the COVID-19 driven slowdown and expect company’s growth and margin outperformance relative to Tier-1 peers to continue in the long-run.
“TCS’ deal win TCV of $8.9b (+44% YoY, ex-Phoenix deal) despite the COVID-19 shock during Q4 FY20 was impressive. In addition, no slippages on timelines in fixed price projects bears testimony to its adaptability and superior delivery capabilities. The pandemic is expected to pose continued near-term challenges on demand, supply, pricing and working capital fronts. Nevertheless, we expect TCS to be relatively better positioned (v/s the sector) to navigate these challenges given its unparalleled execution abilities and strong client relationships,” Motilal Oswal Research said in a note to its clients.
