Most brokerages bullish on TCS post Q3; CLSA upgrades to 'Outperform'

Analysts have mixed views on TCS following its Q3FY25 performance, with several brokerages highlighting the company's growth potential despite near-term challenges

Most global as well as domestic brokerages are upbeat on India’s largest IT services provider, Tata Consultancy Services (TCS), following its performance during the December quarter of FY25, when it missed Street estimates.

 

On the bourses, TCS share price rallied as much as 6.44 per cent to hit an intraday high of Rs 4,296.80 apiece, before settling 5.67 per cent higher at Rs 4,265.55. In comparison, the Sensex closed 0.31 per cent lower at 77,378.91 levels.

 

TCS reported revenue of Rs 63,973 crore for the quarter, reflecting a 5.6 per cent year-on-year (Y-o-Y) growth, or 4.5 per cent Y-o-Y growth in constant currency (CC) terms. Net profit stood at Rs 12,380 crore, reflecting a 5.5 per cent increase.

 

However, the company missed Bloomberg estimates, which had forecast revenue at Rs 64,748 crore and net profit at Rs 12,534 crore.

 

Operating profit margin for the quarter was 24.5 per cent, a decline of 50 basis points (bps) Y-o-Y but an improvement of 40 bps sequentially. 

 

Growth was primarily driven by the consumer business group (up 1.1 per cent), energy, resources, and utilities (up 3.4 per cent), and regional markets (up 40.9 per cent).

 

Among geographies, growth markets performed robustly, with India leading at 70.2 per cent, followed by the Middle East & Africa (up 15.0 per cent), Latin America (up 7 per cent), and Asia Pacific (up 5.8 per cent).

 

Total contract value (TCV) for the quarter stood strong at $10.2 billion, against $8.6 billion in Q2. The last 12 months IT services attrition rate was at 13 per cent. 

 

K Krithivasan, chief executive officer (CEO) and managing director (MD), said, “We are pleased with the excellent TCV performance in Q3. It was well-rounded across industries, geographies and service lines, lending good visibility to long-term growth.”

 

TCS announced a dividend of Rs 76 per share, which includes a special dividend of Rs 66. The record date for the dividend is January 17, 2025, with payment scheduled for February 3, 2025.

 

“In a quarter that saw significant cross-currency volatility, TCS’s strong execution, cost management and deft currency risk management helped deliver healthy margin improvement and free cash flows. Disciplined investments in talent and infrastructure should lend good support to long-term business growth,” said Samir Seksaria, chief financial officer (CFO).

 

Brokerages had mixed views on TCS, following its Q3FY25 performance, with several brokerages highlighting the company’s growth potential despite near-term challenges.

 

Hong Kong-based CLSA upgraded TCS to ‘outperform,’ raising its target price to Rs 4,546, citing strong growth prospects and improved demand, despite a challenging third quarter.

 

Jefferies reiterated a ‘buy’ rating with a target of Rs 4,760, highlighting management's optimistic outlook, margin improvement potential, and attractive valuation. Similarly, Bernstein maintained a ‘outperform’ rating, with a target price of Rs 4,700.

 

In contrast, Tokyo-based Nomura maintained a ‘neutral’ stance, slightly lowering its target to Rs 4,020 (Rs 4,050 earlier), pointing to mixed Q3 results and uncertain growth visibility for FY26.

 

According to reports, London-headquartered HSBC kept a ‘hold’ rating with a target of Rs 4,540, acknowledging optimism for CY25 while cautioning about downside risks in FY26, especially from European market pressures and the BSNL deal.

 

Domestic brokerages, too, highlighted strong deal flows and valuation. Emkay sees a weaker-than-expected Q3 operating performance, with revenue declining 1.7 per cent quarter-on-quarter (Q-o-Q), though deal wins improved to $10.2 billion.

 

The firm acknowledged early signs of revival in discretionary spending and retained an ‘add’ rating with a target price of Rs 4,500, citing attractive valuations post recent underperformance. 

 

Nuvama called TCS’s Q3 results modest but highlighted strong deal flow and improved management commentary.