TCS kicks off corporate earnings season with a mixed Q2 show; what should investors do?

Should you buy, sell or hold the TCS stock after the IT major's earnings announcement? On October 11, the IT major staged a mixed performance for the second quarter of the current financial year (Q2 FY24), and its board approved a buyback worth Rs 17,000 crore. Here's what experts recommend on TCS shares now.

TCS reported an overall mixed financial performance for the July-September period. | Image: Reuters

Tata Consultancy Services (TCS) shares succumbed to selling pressure on Thursday after the country's largest IT company staged an overall mixed quarterly performance, kicking off the corporate earnings season for India Inc. The stock of TCS—the country’s largest IT firm—weakened by as much as 71.2, or two per cent, to Rs 3,542.3 apiece during the session on BSE before settling at Rs 3,539 apiece for the day.

After market hours on Wednesday, TCS reported a 2.4 per cent rise in consolidated net profit to Rs 11,342 crore for the quarter ended September 30 compared the the previous three months, slightly below analysts' expectations. The Tata group IT major's board approved a buyback worth Rs 17,000 crore and also an interim dividend of Rs 9 per share.

The Tata group IT major's revenue came in at Rs 59,692 crore or $7,210 million for the fiscal second quarter, according to a regulatory filing. Both the top-line and the bottom-line missed analysts' estimates. Its margin, however, improved by 110 basis points sequentially to 24.3 per cent, better than Street expectations.

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According to Zee Business research, the software exporter's quarterly net profit was estimated at Rs 11,350 crore, revenue at Rs 60,200 crore or $7,295 million, and margin at 24.1 per cent.

TCS said its revenue in constant currency terms increased 2.8 per cent compared with the corresponding period a year ago. Here's how its various segments fared in terms of revenue:

Segment	Q2 FY24 revenue (in crore rupees)	Change vs Q1 (QoQ)
BFSI	22,840	0.8%
Manufacturing	5,787	2.7%
Consumer business	9,773	-1%
Communication, media & tech	9,572	-0.3%
Life sciences & healthcare	6,625	-0.2%
Others	5,095	2.4%

Revenue from the company's core BFSI segment, which accounted for the lion's share of 38 per cent in its total revenue, increased 0.8 per cent on a quarter-on-quarter basis to Rs 22,840 crore.

TCS CEO K Krithivasan said the company's strong deal momentum delivered "a very large order book" in Q2 and a good pipeline. "The resilience of demand for our services, our clients’ willingness to commit to long tenure programs and their continued appetite for experimentation with Gen AI and other new technologies give us confidence in our longer-term growth prospects,” he said.

The Tata group firm's order book stood at $11.2 billion for the quarter under review, remaining above the $10 billion mark for the third quarter in a row. Read more on TCS Q2 earnings

Attrition at the company eased to 14.9 per cent from 17.8 per cent at the end of the previous quarter, according to a statement.

Buy, sell or hold TCS shares after the IT major's Q2 results, buyback, dividend announcements?

EDITOR'S TAKE | Anil Singhvi sees support for TCS futures emerging at Rs 3,555-3,575 levels, a higher zone at Rs 3,640-3,665

Zee Business Managing Editor Anil Singhvi suggested adopting a 'buy on dips' strategy on TCS shares after the earnings announcement.

THe market guru highlighted the following key points about the IT giant's earnings report:

Negative

Buyback price and size below expectations
Negative growth in dollar revenue

Positive

Strong margins and guidance
Strong new order win at $11.2 billion

What analysts make of TCS shares

Brokerage	Rating	Price target	Upside/downside vs Wednesday's close
Morgan Stanley	Equal-weight	Reduced to Rs 3,590 from Rs 3,730	-0.6%
Jefferies	Hold	Raised to Rs 3,690 from Rs 3,450	+2.2%
Goldman Sachs	Buy	Raised to Rs 4,020 from Rs 3,970	+11.4%
JPMorgan	Underweight	Rs 2,900	-19.7%
Citi	Sell	Rs 3,170	-12.2%
Nomura	Reduce	Reduced to Rs 3,030 from Rs 3,040	-16.1%
HSBC	Hold	Reduced to Rs 3,625 from Rs 3,640	+0.4%
Macquarie	Outperform	Rs 4,220	+16.9%

Catch highlights of TCS Q2 results here

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