Tata Group's third-largest company (by market value) — Tata Steel — surpassed the group's crown jewel Tata Consultancy Services (TCS) in terms of profitability.
TCS's profit for the year ended March 2022 came in at Rs 38,327 crore. This was behind Tata Steel's Rs 40,153.9 crore, as a surge in metal prices favoured the alloy maker.
As we go about explaining how Tata Steel's annual profit topped that of TCS, one must understand that both companies belong to two different industries. This makes their results incomparable.
"It is not fair to compare the two. We need to understand that they are both from different baskets... Tata Steel is from a more cyclical industry and TCS a secular growth story," AK Prabhakar, Head of Research at IDBI Capital Markets, told CNBCTV18.com.
This tells the tale of two industries enduring different cycles. One is an IT giant that is struggling against a high attrition rate and thus high employee costs, and the other riding on a surge in rates of commodities such as metals.
TCS, Titan and Tata steel are the group's largest companies in terms of market capitalisation. Both giants beat the Street's revenue estimate in the January-March period, though struggling against margin pressure.
Tata Steel declared a final dividend of Rs 51 per equity share, and TCS that dividend of Rs 22 per share. For shareholders of the steel major, it is the company's highest dividend ever.
JPMorgan maintained its 'overweight' call on Tata Steel and raised its target price to Rs 1,940 after the release of the company's earnings report.
And after India's largest software exporter reported its financial results last month, the brokerage maintained a 'neutral' rating on TCS with a target price of Rs 3,900.
JPMorgan does not see further upside triggers for TCS shares, adding that the stock trades at premiums of 11 percent and eight percent to Infosys and Accenture, respectively.
Can Tata Steel maintain its pole position among the group's businesses going forward?
Things can suddenly change for a company like Tata Steel, whereas there are "very rare" chances of de-growth for TCS despite margin pressure, said Prabhakar of IDBI Capital.
"Over a two-year average, a company like TCS will always grow, the kind of growth that may not be possible for Tata Steel," he said. The boost in Tata Steel's profitability and its 3.9 percent dividend yield, in his view, has been surprising for the Street, making its valuation "very attractive".
Its stock split is also likely to come, which traders can use to make big money out of," he said.
