TCS After Q1: Tata's Monster Stock Up 3%, Rs 10/Sh Dividend Soon; 8 Analysts Say BUY, Highest Target Rs 4,800

Tata Group's monster and most-valued stock, Tata Consultancy Services (TCS) share price rallied nearly 3% after reporting upbeat Q1 results for FY25. Although discretionary spending remains lacklustre, TCS witnessed single-to-double-digit growth almost in the majority of key verticals with Emerging Market adding robust growth led by India business. 8 analysts have recommended BUY on TCS share price with the highest target price set at Rs 4,800 which is set by Nuvama.

At the time of writing, TCS's share price traded at Rs 4,027, up by Rs 104.30 or 2.66% on BSE, with a market cap of Rs 14,57,058.11 crore. The stock is near its intraday high of Rs 4,044.35 apiece.

TCS is also closing the gap towards its 52-week high of Rs 4,254.45 apiece.

In Q1FY25, TCS logged a consolidated net profit of Rs 12,105 crore, which increased by 8.86% from a net profit of Rs 11,120 crore in the same quarter a year ago. However, on a quarter-on-quarter basis, TCS PAT declined by 3.2% in Q1FY25 compared to PAT of Rs 12,502 crore in Q4FY24. On the other hand, the net margin of TCS is at 19.2%, while net cash from operations stood at Rs 11,168 crore which is 92.8% of net income in Q1FY25. Also, in the quarter, operating margin was at 24.7%, which expanded by 1.5% YoY.

On the top-line front, TCS reported consolidated revenue of Rs 62,613 crore, recording a growth of 5.44% from revenue of Rs 59,381 crore in Q1FY24, and was also up by 2.5% from revenue of Rs 61,237 crore in Q4FY24. In constant currency, the company's revenue growth is at 4.4% YoY.

TCS all major markets return to sequential growth in Q1FY25, with double-digit growth seen in Emerging Markets, led by India (+61.8% YoY). Also, YoY Growth led by Manufacturing (+9.4%), Energy, Resources & Utilities (+5.7%), and Life Sciences & Healthcare (+4.0%), as per TCS data.

Also, Motilal Oswal in its report said, while growth was driven by the BSNL deal ramp-up, verticals in key markets such as communications and retail continued to be weak. However, Motilal pointed out that the ~4% decline in communications was concerning, as there was a growing consensus that spending cuts in the sector had bottomed out after a weak FY24.

In terms of segment, Motilal mentioned that BFSI, particularly the banking clients in the US, returned to growth in the quarter. The nature of demand was largely the same, and clients continued to prioritize cost optimization projects.

In Motilal's view, a fed pivot is probably a meaningful catalyst for telecom clients. However, the brokerage believes a more meaningful turnaround in this vertical could only be seen once network rollout capex trickles down to services spending/opex. This could be more gradual even in case of rate cuts, in my opinion.

Further, Nirmal Bang cited TCS management commentary which was cautiously optimistic with the demand
environment remaining the same as 4QFY24. It said clients continue to reprioritize projects towards those with immediate ROIs, leading to deferment of discretionary projects.

In regards to deal wins, Nirmal Bang pointed out that TCV at US$8.3bn for 1QFY25 was disappointing after US$13.2bn in 4QFY24 (highest ever quarterly TCV), although the management stated that it is a timing issue with some deal closures getting spilt over into 2Q. Further, TCV remains in the guided range of US$7-9bn.

Overall, B&K Securities said, "TCS's 1QFY25 results were ahead of our as well as Street's expectations on revenue terms but ahead on margin front concerning our estimates and in line with Street's estimates (contraction of 130 bps on a QoQ basis, 170 bps impact owing to wage hike). The commentary around the demand environment remained stable with green shoots already visible in BFSI (reported QoQ growth of 0.6%) and CPG vertical. All major markets returned to QoQ growth; almost all verticals returned to QoQ growth. The company will continue to hire freshers in FY25."

Should You BUY TCS Share Price?

B&K Securities said, "To accommodate beat on both growth and margins, we upgrade our FY25/26E EPS estimates by 3/2%, respectively. We maintain our Buy rating on the stock with an increased target price of Rs 4,694 (earlier Rs 4,621). We value the stock at ~30x on FY26E EPS of Rs 156.5."

Post Q1, Nirmal Bang has tweaked its Revenue and EPS estimates marginally upwards for FY25-FY27E considering a healthy deal pipeline, margin outperformance and increasing AI projects. The brokerage believes that TCS can deliver sustainable earnings growth, the best margins, strong ROICs and healthy cash flows in the Tier-1 space. Hence, the brokerage sees FY25-FY27E revenue CAGR at ~10.3%.

Accordingly, Nirmal Bang recommended BUY for a target price of Rs 4,592.

Given its size, order book and exposure to long-duration orders and portfolio, TCS is well positioned to withstand the lukewarm macro environment, as per Motilal. It added, "Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios."

Motilal maintains its positive stance on TCS. It said, "Our TP of INR4,660 implies 30x FY26E EPS, with a 20% upside potential. We reiterate our BUY rating."

However, the highest target price on TCS is set by Nuvama. The brokerage has maintained BUY for a target of Rs 4,800 with a positive outlook. Meanwhile, Jefferies upgraded its stance on TCS to BUY, while raising its target price of Rs 4,615 per share from earlier Rs 4,030 per share.

UBS and JP Morgan also maintained BUY with a target price of Rs 4,600 with a positive outlook. Also, CLSA has maintained BUY, however, TCS has already met its target of Rs 4,007 on July 12.

On the contrary, brokerage Citi recommended a SELL on TCS for a target price of Rs 3,645. While Nomura was NEUTRAL with a target price of Rs 3,860.

Ahead, TCS will also reward its investors with the first interim dividend of Rs 10 per share for FY25. The record date is fixed on July 20, and the payment will be carried out in August.