Tata Consultancy Services Ltd. was among IT stocks declining on Tuesday after its Rs 3,575 crore acquisition of Porsche subsidiary MHP Management drew mixed views from brokerages.
TCS fell as much as 0.7% to Rs 2,268.90. Several other IT stocks also traded lower, including Hexaware Technologies, HCLTech, Oracle Financial Services, Birlasoft, Persistent Systems, Tech Mahindra, Wipro, Infosys and Tata Elxsi.
The stock declines followed the announcement of TCS' acquisition of MHP Management, with brokerages broadly seeing strategic benefits from the deal while differing on its financial impact and risks.
The transaction could strengthen TCS' automotive consulting capabilities and expand its exposure to the European automotive market, according to brokerages. However, analysts also flagged concerns over the acquired entity's revenue profile and the limited near-term financial contribution.
TCS said its partnership with Porsche will focus on AI-led transformation across engineering, manufacturing, operations, customer experience and enterprise transformation. The companies will also work on next-generation automotive technology services and software-defined mobility platforms.
The acquisition remains subject to regulatory approvals across the European Union and Germany, among others.
Strategic Benefits
CLSA retained its Hold rating on TCS and set a target price of Rs 2,326.
The brokerage expects the deal win to be added to TCS' order book in the second quarter, while the acquisition is expected to close in three to four months.
CLSA said TCS could improve the acquired company's profitability by using its offshore delivery capabilities. The acquisition also fills gaps in TCS' automotive consulting business and increases its exposure to the European automotive market, it said.
Limited Impact
Morgan Stanley maintained its Equal-weight rating on TCS with a target price of Rs 2,200.
The brokerage said the MHP acquisition complements TCS' existing business and strengthens its capabilities. It added that the Porsche engagement could establish a long-term strategic relationship.
Morgan Stanley expects the financial impact of the acquisition to remain limited. It estimates the deal could add about 3% to revenue growth and less than 1% to profit after tax, assuming mid-single-digit margins.
The brokerage said TCS is increasingly using acquisitions to address capability and market gaps, making the transaction a medium-term positive. It also flagged a slowdown in the automotive sector and the acquired entity's declining revenue profile as key investor concerns.
Revenue Risks
Citi retained its Sell rating on TCS with a target price of Rs 1,825.
The brokerage said the acquisition could anchor a long-term partnership with Porsche. Assuming a EUR 600 million to EUR 700 million revenue run rate in FY28 and EBIT margins of 7% to 9%, Citi estimates the deal at about 5 to 8 times enterprise value to EBIT.
Citi said the valuation appears low but flagged the risk of revenue decline at the acquired entity, noting that European IT companies trade at similar valuations.
The brokerage said similar deals across the sector could support near-term growth. However, it warned that the existing business could see its revenue decline year-on-year at a faster pace.
Citi said it remains cautious on Indian IT stocks.
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