TCS shares flat amid US court's ₹1,619 cr penalty for 'misappropriation of trade secrets'

Shares of IT services major Tata Consultancy Services Ltd (TCS) surged in the morning trade today despite a gap down opening after the company received an adverse judgement worth $194 million (₹1,619 cr) passed by the United States District Court, Northern District of Texas, Dallas Division. TCS' response to the court ruling said it believes the judgement has no major "adverse impact" on its financials and operations.

TCS also said it has "strong arguments" in the matter and intends to defend its position through a review petition or appeal to the appropriate court. The case pertains to a suit filed by Computer Sciences Corporation (CSC)/DXC Technology Company (DXC) against TCS, accusing the IT services behemoth of "misappropriation" of its trade secrets.

The court ordered the company was liable to CSC for $56,151,583 in compensatory damages and $112,303,166 in exemplary damages. The U.S. court also assessed the company is liable for $25,773,576.60 in prejudgment interest through June 13, 2024. "The Court also passed certain injunctions and other reliefs against the company," says TCS.

The court ruled that under the terms of the court orders, it is liable for the "misappropriation of trade secrets" under the Defend Trade Secrets Act of 2016 (DTSA).

Shares of TCS are trading flat at ₹3,832 on the BSE, about 10% lower compared to its 52-week high of ₹4,254.45 touched on March 18, 2024. The company's m-cap, at the current share price, stands at ₹13.8 lakh crore. The TCS shares have surged 19.3% in the past year, while 0.51% in the year-ago period. The shares have fallen 0.67% in the past six months, and are up 0.36% in the past month.

TCS reported revenue of $7.36 bn in the Jan-March quarter of FY24 (Q4 FY24), up 1.1% QoQ in constant currency (CC) terms, in line with Bloomberg consensus, despite ongoing demand weakness. The growth was driven by India (up 11% QoQ/37% YoY, aided by BSNL scale-up) and the UK (up 3.6% QoQ) markets, while North America and Continental Europe were weak. TCS' Q4 PAT was ₹12,400 crore, while FY24 PAT stood at ₹46,200 crore, up 9.3% YoY.

Among brokerages, Motilal Oswal has maintained a 'BUY' rating on the stock. "We have broadly maintained our FY25-FY26 EPS estimates. Over FY24-26E, we expect a USD revenue CAGR of ~10% and an INR EPS CAGR of ~15%. Our TP of INR4,600 implies 27x FY26E EPS, with a 15% upside potential. We reiterate our BUY rating on the stock." HDFC Securities maintained an 'ADD' rating, with a target price of ₹4,500. "We expect TCS’ growth to accelerate from 3.4% CC in FY24 to 6.3% and 8.2% in FY25E & FY26E with EBITM at 25.5% and 26.0% respectively, translating into an 11.5% EPS CAGR over FY24-26E."