Will TCS shares hit hard after CEO Rajesh Gopinathan’s unexpected exit? Here’s what analysts say

Tata Consultancy Services (TCS) CEO Rajesh Gopinathan’s unexpected exit has surprised many on Dalal Street, as he led the IT major for just six years and was expected to continue for the long term given his age (52 years). Under Gopinathan, the Tata group firm handled external pressures, including a transition to Digital delivery and the Covid impact relatively well despite its size. But, TCS’ growth trailed peer Infosys of late.

For now, analysts are not seeing any big impact of Gopinathan’s exit on business delivery. Price targets for TCS suggest an up to 20 per cent potential upside for the stock ahead.

Kotak Institutional Equities noted that Gopinathan was reappointed as TCS CEO in February for a five-year term until February 2027. His resignation is abrupt and a surprise noting that his second term still had four years remaining. The brokerage has maintained its ‘ADD’ rating on the stock with a target of Rs 3,500.

“The announcement is a surprise given Mr Gopinathan’s track record and long association with TCS. Even so, we believe TCS has among the strongest leadership bench in the industry; hence, the transition shall be as smooth as when Gopinathan had taken over the reins from Chandrasekaran, who was promoted as Chairman of Tata Group,” said Nuvama Institutional Equities.

To recall, Gopinathan has been with Tata Group since the beginning of his career, when joined Tata Strategic Management Group in 1996. He had moved to TCS in 2001. Since then, Gopinathan has held various positions, including CFO in 2013–17, before being appointed as CEO in February 2017, after former CEO N Chandrasekaran, was promoted as Chairmen of Tata Group.

Analysts noted that Gopinathan continued the legacy of last CEO, delivering industry-leading growth among large-cap peers, adding over $10 billion in incremental revenue during his tenure.

TCS has continued its legacy of promoting leadership internally. Like Mr Gopinathan, Mr Krithivasan is a Tata Group veteran. He began his career with TCS in 1989, and has held various leadership roles since then in delivery, customer relationship management, large program management and sales within TCS. He is currently President and Global Head of BFSI.

“We believe TCS is a well-oiled machine, and has a long history of seamless transitions at all management levels. Most of its leadership positions have been held by TCS veterans, who have risen through the ranks. BFSI is the largest segment within TCS, contributing over 30 per centof revenue in Q3FY23, which makes Krithivasan the natural/perfect choice for the role,” Nuvama said.

Motilal Oswal Securities said it continues to see TCS as the best play in the IT services space in the current environment, with a focus on cost optimisation and vendor consolidation.

“We expect a dollar revenue CAGR of 11 per cent and an EPS CAGR of 16 per cent over FY23-25. Our TP of Rs 3,810 implies 24 times FY25E EPS, with a 20 per cent upside potential. We have a BUY rating on the stock,” it said.

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