Sumeet Bagadia of Choice Broking lists TCS as top ‘Women’s Day 2024 Pick’; here’s why

Sumeet Bagadia of Choice Broking has chosen IT major Tata Consultancy Services (TCS) as his ‘Women's Day 2024 Pick’. Bagadia has recommended a ‘Buy’ on the IT stock at ₹4,070 and up to ₹4,000 for a target price of ₹4,400 to ₹4,600.

As per the expert, TCS, currently priced at ₹4070, has shown a promising technical setup on the weekly chart with the formation of a rounding bottom pattern. The recent breakout from a daily trendline accompanied by substantial volume suggests a robust uptrend. Immediate resistance is anticipated around ₹4,400, while solid support is observed near ₹3,780.

Furthermore, he pointed out that TCS is trading above crucial Exponential Moving Averages (EMAs) such as the 20-day, 50-day, 100-day, and 200-day, indicating a strong bullish momentum and signaling the potential for further upward price movement. The Relative Strength Index (RSI) has rebounded from lower levels and currently stands at 55.84, reflecting increasing buying momentum.

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Additionally, the Stochastic Relative Strength Index (Stoch RSI) displays a positive crossover, further supporting the bullish outlook. Collectively, these technical indicators suggest that TCS may have the potential to achieve target prices of ₹4,400 and ₹4,600 in the near term. A prudent strategy would involve considering buying opportunities on market dips, particularly around the ₹4000 level, he added.

In summary, given the positive technical analysis and prevailing market conditions, TCS appears to present a promising buying opportunity for those targeting ₹4400 and ₹4600 price levels. It is essential to implement prudent risk management measures when considering such trades, added the expert.

Stock Price Trend

The stock has jumped almost over 20 percent in the last 1 year. In comparison, the Nifty IT index has advanced 23 percent in the last 1 year.

Meanwhile, it is flat, up just 0.3 percent in March 2024 so far, extending gains for the fifth straight session. It jumped a 7.6 percent in February 2024 after a 0.74 percent rise in January. In this period, between November 2023 and March 2024, the stock has added over 22 percent.

The stock is just around 2 percent away from its record high of ₹4184.75, hit on February 9, 2024. Meanwhile, it has jumped almost 34 percent from its 52-week low of ₹3,070.30, hit on April 17, 2023.

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Earnings

The IT major TCS reported a 2 percent YoY rise in its net profit at ₹11,380 crore. In the same quarter a year ago, the company recorded a net profit of ₹10,883 crore. The firm also posted a 4 percent YoY rise in its Q3 consolidated revenue from operations at ₹60,583 crore against ₹58,229 crore in the same quarter last year.

The company's operating margin improved by 50 bps to 25 percent during the quarter under review which, as per the company, excludes the one-time charge of $125 million towards the settlement of legal claim.

Commenting on the Q3FY24 performance, K Krithivasan, Chief Executive Officer and Managing Director, said: “Our strong performance in a seasonally weak quarter buffeted by macro-economic headwinds, demonstrates the strength of our business model with a well-diversified portfolio and a customer-centric strategy. We are seeing strong deal momentum across markets resulting in a solid order book providing visibility into our long-term growth.”

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Fundamental View

UBS: UBS increased TCS's target price to ₹4,700/share from ₹4,050/share, noting its current premium over peers is below the historical average. They suggest further outperformance could prompt a re-rating, showing confidence in the current valuation. Historically, TCS has traded at a 29% premium, currently at 16%, which could rise if TCS continues to outperform. UBS sees minimal risk to TCS's PE multiple of 24x on FY26 EPS. TCS is expected to outpace peers in revenue growth by 100–150 basis points in FY25, with a projected 8.8% YoY USD revenue growth, compared to 4.7% in FY24, surpassing peers' expected growth of 3.6–8.2%.

Choice Broking: As per the brokerage, the company's Q3 growth remained robust, particularly in emerging markets like India and the Energy, Resources, and Utilities vertical. Manufacturing and Lifesciences and Healthcare also contributed to growth. Geographically, the UK and India are seen as growth opportunities, with significant growth in the Middle East and Africa, Latin America, and Asia Pacific.

Despite some challenges such as macro uncertainty, the company expects vertical growth in Q4 due to a strong pipeline. Attrition rates were low, and fresher hiring is anticipated in FY25. The brokerage expects strong deal momentum and solid order book visibility for long-term growth, particularly with client interest in GenAI. Choice Broking predicts Revenue/EBIT/PAT to grow at a CAGR of 8.4%/9.4%/8.9% respectively over FY23-FY26E. They maintain an ADD rating with a revised target price of ₹4,065, implying a PE of 25x (unchanged) on FY26E EPS of ₹163.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.