Nearly half of the 49 analysts who track TCS continue to have a buy recommendation on the stock. However, the commentary after the company's June quarter results has erred on the side of caution with some analysts cutting the stock's 12-month price target as well.

TCS reported its slowest June quarter in a decade excluding the Covid period on Wednesday. Constant currency growth for the quarter was flat, compared to a CNBC-TV18 poll of 0.2 percent growth.

The company's EBIT margin for the quarter stood at 23.2 percent, which was 20 basis points lower than the CNBC-TV18 poll of 23.4 percent. The EBIT margin was the lowest for the company in four quarters as it introduced annual wage hikes for employees, effective from April 1 this year.

Brokerage firm Nomura believes that it is unlikely for TCS to achieve 25 percent EBIT margin in the current financial year. The firm called the earnings a miss on both revenue and margin fronts. While the company's order book is holding up with a second straight quarter of $10 billion in deal wins, Nomura said that the near-term visibility remains low.

Nomura has maintained its reduce rating on TCS with a price target of Rs 2,800, which is among the lowest on the street for the stock. The price target implies a potential downside of 14 percent from current levels.

TCS is witnessing near-term softness driven by uncertainty driving project pauses and deferrals, said JPMorgan in its note. The firm noted that the stock is trading at 25 times one-year forward price-to-earnings, while growing at 3 percent in financial year 2024.

JPMorgan has an underweight rating on TCS and has also cut its price target to Rs 2,650 from Rs 2,700 earlier.

Among the few who have maintained a bullish stance on TCS is Bernstein, which has maintained an outperform rating on the stock with a price target of Rs 3,650. The brokerage said that management indicated demand environment continues to remain soft on discretionary projects, while enterprises are focusing on large cost optimisation deals.

Jefferies has maintained a hold rating on TCS with a price target of Rs 3,450. The brokerage said that TCS' valuations limit any potential upsides and it now expects the company to deliver 6 percent Compounded Annual Growth Rate (CAGR) in constant currency revenue and 10 percent EPS CAGR over financial year 2023-2025.

Rising caution among clients across key verticals in Europe and North America, subdued book to bill ratio and muted headcount additions suggest that demand uncertainties persist.

Out of the 49 analysts that track TCS, 25 of them have a buy rating, 13 say hold, while 11 have a sell recommendation.

First Published:Jul 13, 2023 9:02 AM IST