TCS shares plunge more than 6% despite a stronger dollar that’s good for future profits

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TCS shares plunge more than 6% despite a stronger dollar that’s good for future profits
BCCL
  • India’s largest software exporter posted a revenue growth of 2.9% growth in revenue to $6.3 billion in the September quarter.
  • That was less than 3.8% growth, which was the consensus estimate on the street.
  • The market ignored the strength in the US dollar, which hit a 2-year high early on Monday.
  • For an exporter like TCS, which earns in dollars, a rise in the value of the American currency results in higher profit in rupee terms.
  • Check out the latest news and updates on Business Insider.
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Revenue for India’s largest software exporter Tata Consultancy Services (TCS) grew 2.9% to $6.3 billion in the September quarter, when compared to the preceding three months. That was less than 3.8%, which was the consensus estimate on the street. Even the net margin at 25.6% was less than what the market had hoped for.

The stock fell to near ₹3,670 in early morning trade on October 11, wiping out the gains since mid-August. The disappointment was so strong that the market ignored the strength in the US Dollar, which hit a 2-year high early on Monday.

TCS shares plunge more than 6% despite a stronger dollar that’s good for future profits
Flourish chart/BSE data

For an exporter like TCS, which earns in dollars, a rise in the value of the American currency results in higher profit in rupee terms. “We believe demand for core transformation remains strong, and this coupled with exemplary execution is likely to drive strong earnings,” said Edelweiss in its report post earnings and the broking firm kept the rating at ‘buy’ and the target price at ₹5,000 in the next one year.
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Analysts at Motilal Oswal who cut the share price target by 4% to ₹3770 ⁠— not very far where the stock is right now ⁠— are a bit more circumspect. “The management has indicated that margin in the near term can be soft, led by ongoing supply-side challenges,” said their report.
Broking firmTarget price for TCS
Edelweiss₹5,000
Motilal Oswal₹3,774
Goldman Sachs₹4,657
UBS₹3,936
CLSA₹4,050
Source: Analyst reports and media reports

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TCS hired 43,000 freshers in the first half of 2021 and expects to hire another 35,000 in the next six months. That’s almost twice the hiring target the tech bellwether set for itself at the start of the financial year in April.

The churn in the information technology (IT) industry has reportedly cooled off, but in the case of TCS, attrition, increased to 11.9% in July-September quarter from 8.60% in April-June period. This is the highest churn at TCS in at least six quarters.

TCS shares plunge more than 6% despite a stronger dollar that’s good for future profits
Flourish chart

“We believe this attrition level will continue for the next 2-3 quarters. Having said that, our strong employer brand and our robust talent acquisition and talent development models will help us significantly overcome the supply side issues…We will continue to hire more and more and keep the supply ready since our model is robust. The attrition level is definitely concerning, but we can manage through that,” Milind Lakkad, global head of human resources at TCS, told the media after the earnings announcement on Friday.

These are the growth rates of the different industry verticals that TCS provides technology services to:
TCS shares plunge more than 6% despite a stronger dollar that’s good for future profits
Flourish chart

SEE ALSO: OPINION: RBI sticks to its stated trajectory but stands ready to act
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