TCS trades firm in weak market on strong Q4 show; brokerages remain upbeat

TCS reported a 9.1 per cent YoY growth in net profit at Rs 12,434 crore for Q4FY24, while revenue from operations rose by 3.5 per cent.

Shares of Tata Consultancy Services (TCS) were trading up nearly 1 per cent at Rs 4,034 on the BSE in Monday's intra-day trade as analysts expect strong deal momentum resulting in a comfortable deal mix of mega, large and small-mid sizes to provide visibility for long-term growth. There has been tremendous client interest in GenAI (pipeline doubled) and the company is leading the innovation and exploratory efforts for the same.

At 09:30 am; TCS traded 0.8 per cent higher at Rs 4,035, as compared to 0.82 per cent decline in the S&P BSE Sensex.

TCS, India’s largest information-technology (IT) services player, on Friday after market hours, reported a 9.1 per cent year-on-year (YoY) growth in its March quarter (Q4FY24) net profit at Rs 12,434 crore. Sequentially, profit after tax grew 6 per cent from Rs 11,735 crore. Revenue for the quarter was up 3.5 per cent YoY and up 1 per cent quarter-on-quarter (QoQ) at Rs 61,237 crore.

TCS signed one of its highest total contract values (TCV) — $13.2 billion — in the fourth quarter of FY24. For the fiscal year ended March 2024, TCS order book stood at $42.7 billion, a record level.

The management said the company faces no issues in executing non-discretionary and vendor consolidation deals. However, there are delays in global discretionary spending and hence there seems to be uncertainty. There was a de-growth in North America geography and BFSI vertical but the management feels it has bottomed out and shall turnaround in coming quarters.

Further, the management expects FY25E to be better than FY24 due to short term deal wins of low value.

Brokerage firm Choice Equity Broking said it maintains 'Buy' rating on the stock with a revised target price of Rs 4,495 implying a PE of 28x on FY26E EPS of Rs 160.

While the company expects FY25 revenue growth to be better than the low FY24 base, near-term quarterly growth commentary is still modest due to a focus on projects with high ROI and cost optimization, Motilal Oswal Financial Services (MOSL) said.

The brokerage firm continues to expect TCS to benefit in FY25 from the large BSNL deal execution. But continued uncertainty on growth pickup in North America and Europe is likely to weigh on overall growth, which MOFSL estimates at 8.8 per cent YoY. Despite growing in single digits, TCS should be among the fastest growing large cap companies in our coverage universe, it added.

According to analysts at Sharekhan, TCS's resilient revenue growth profile and improving margin trajectory are expected to witness an uptick with the ramp-up of large deals and improvement in certain industry verticals, including BFSI along with opportunities across newer technology services. The company’s strong domain expertise, geographical presence, and ability to cross-sell make it well-placed to grab opportunities across cost optimisation, digital transformation, and newer technology services.

The ramp-up of JLR, Nest, BSNL and Aviva deals are likely to fuel revenue growth in the medium to long term. TCS is witnessing a margin uptick aided by moderating attrition and declining subcon costs. Margin improvement is expected to steadily continue in FY25, aided by revenue growth, further moderation in LTM attrition, subcon cost optimization, and improving utilization, the brokerage firm said.