MUMBAI (NewsRise) -- Tata Consultancy Services became the first Indian information technology company to vault past the $100 billion market value, as investor confidence in the country's largest software exporter surged after better-than-expected quarterly earnings.
Shares of TCS touched a record high of 3,557 rupees ($54) before paring the gains to close up 0.3% in Mumbai trading on Monday. The benchmark S&P BSE Sensex gained 0.1%. The last time an Indian company achieved this benchmark was in 2008, when billionaire Mukesh Ambani-backed flagship Reliance Industries crossed $100 billion in value. Reliance Industries is now worth $89 billion.
TCS' shares have surged more than 26% since the beginning of this year, helped by several large contract wins in the past six months. The Tata Group company's performance also eclipsed Infosys, once India's bellwether stock for the technology industry. Infosys' shares have risen 14% in the period as the company grappled with a prolonged leadership turmoil.
Over the past five years, TCS' average price-to-earnings multiple stood at 19 times, compared with 16 times for Infosys, said Harit Shah, any analyst at Mumbai-based brokerage Reliance Securities. It implies TCS holding an average premium of 20% over Infosys, Shah said.
"For such a large firm, in a maturing industry, to be able to maintain and even enhance profitability over so many years, and to be able to deliver well above industry revenue growth is no mean feat," he said.
Mumbai-based TCS last week reported its biggest-ever profit in January-March quarter, and forecast double-digit revenue growth for this fiscal year on the back of surging investments in digital services and a near-recovery in spending by clients in the banking and financial services industry in the U.S. The company also announced one bonus share for each held, further cheering investors.
TCS's strong performance also reinforces investor confidence in India's software exports industry that has been reeling under shrinking client spending and protectionist sentiments in major western markets.
A string of brokerages upgraded TCS stock after the latest earnings. Morgan Stanley raised TCS to `overweight' from `equal-weight' and increased its target price on the stock to 3,650 rupees. It valued the company at 22 times its fiscal year 2020 earnings.
Infosys, earlier this month, reported a fourth-quarter profit in line with market expectations and gave a conservative growth forecast for this year as new Chief Executive Salil Parekh seeks to set the company in order with a fresh strategy.
Infosys's troubles stemmed from the simmering tensions between its former Chief Executive Vishal Sikka and co-founder N.R. Narayana Murthy that dragged on for more than a year. The dispute culminated in Sikka stepping down in August, and Infosys appointing Parekh, a former CapGemini executive, as the new CEO.
Some of the institutional investors, including Oppenheimer Funds, which questioned the non-executive founders' persistent interference in the running of Infosys, have since reduced their exposure to the company stock. Oppenheimer Funds, which held a 2.7% stake in Infosys at the beginning of last year, cut its exposure to 1% at the end of December, according to data available on the stock exchange.
On Monday, Infosys' market capitalization stood at $39 billion.
To be sure, some analysts remain sceptical of TCS' valuation. In a report on Friday, Nomura said it retains its `reduce' rating on the stock, citing 'expensive' valuations. Nomura said it sees risk to street expectations of double-digit revenue growth as clarity on a recovery in the financial services business that account for a third of TCS' revenue still remains "a quarter away..."
--Dhanya Ann Thoppil