Tata Consultancy Services (TCS) shares fell more than a percent on the BSE in early trade Tuesday, despite the fact that India’s biggest IT company’s Q2 FY23 earnings above expectations, with earnings, margins, and profits exceeding projections and deal wins remaining stable at $8.1 billion.

TCS, the world’s largest IT services exporter, announced a more than 8% increase in its September quarter net profit of Rs 10,431 crore on Monday. The reporting quarter showed an 18% increase in revenues to 55,309 crores from 46,867 crores the previous year, while the operating margin narrowed by 1.60 percentage points to 24%.

“Deal wins were steady at $8.1 billion year-over-year, but increased subcontracting and lower net hires reflect management prudence in an uncertain environment.”

We increase our FY23-25 projections by 2-5% to account for INR devaluation versus the USD, and we anticipate TCS to generate a 12% EPS CAGR over FY22-24. TCS’ premium valuations may restrict upside,” warned global firm Jefferies, while keeping a Hold rating and an updated target price of 3,180 per share on TCS shares.

TCS’s quarterly performance were basically steady. “Cross-currency resistance affects the USD- reported sales” The good rise in EBIT margin was driven by an improved staff hierarchy and other efficiency improvements (up 91 basis points QoQ).

Employee attrition remained high, with LTM attrition increasing by 180 basis points QoQ to 21.5%, according to Yes Securities. The firm has changed the IT stock to Add from Buy, with a new target price of $3,536 a share.

“TCS feels little hesitation about investing in Europe. They are still thinking to invest in the USA because TCS thinks that the USA has a better environment to invest in.”

While we continue to be worried about Q3 margins due to cost optimization timelines, the supply situation easing out in 2HFY23, according to Motilal Oswal, which has a Buy rating and a target price of 3,580, gains from increasing newer additions in the previous several quarters, as well as decreased sub-contractor costs, should help profits.

The Company

TCS is one of the most valuable IT service brands in the world and the second-largest Indian company in terms of market value. TCS, one of the top-ranked Indian corporations and an IT services provider, was rated 64th overall in the Forbes list of the “World’s Most Innovative Companies” in 2015.

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