Brokerages cut TCS target price; expect FY21 to be tough on margins

Brokerages have cut target price on shares of Tata Consultancy Services after the company said it expected revenue to contract in FY21 amid disruptions caused by the COVID-19 pandemic.

Brokerages believe there are challenges for the company’s revenue and margins in the first half of the ongoing financial year due to coronavirus but a recovery is likely only in the second half. Many are cautious because of the higher valuations.

However, shares of TCS ended up 5.3% at Rs 1,806.80 on Friday as the company managed to protect margins and report record deal wins in the March quarter.

Kotak Institutional Equities has maintained reduce rating on TCS and cut target price by 2% to Rs 1,705 saying that valuations are punchy.

Macquarie has slashed earnings estimates for the ongoing and next financial years by 9-16% and cut target price by 9% to Rs 1,890.

CLSA has cut revenue estimate for TCS by 12% and trimmed EPS estimates by 8-10% for FY21-FY22.

“Though 1H FY21 is expected to be tough, both for revenue and its margin, its strong order book provides confidence in revenue recovery in 2HFY21,” said CLSA.