Zero-Debt Tata Stock For Rs 4,500 Target: What Should Investors Do In TCS Stock After Upbeat Q1 Earnings?

After the upbeat Q1 results of Tata Consultancy Services (TCS) for FY25, it looks like the worst is behind the IT sector whose FY24 ended on a weaker note due to challenging macro conditions, especially in North America. On July 11, TCS reported a strong quarter, beating street estimates. Hence, Mehta Equities recommend investors maintain their position in TCS for a potential upside of Rs 4,500 target price, which will be the Tata stock's new all-time high.

TCS share price stood at Rs 3922.70 apiece, up by Rs 12.80 or 0.33% on BSE, after market hours of July 11th. The market cap of the company is at Rs 14,19,267.19 crore. The stock's 52-week high and low is at Rs 4,254.45 apiece and Rs 3,250 apiece respectively.

In the first quarter of FY25, TCS posted a consolidated net profit of Rs 12,105 crore, rising by 8.86% from a net profit of Rs 11,120 crore in the same quarter a year ago. However, sequentially, TCS' consolidated net profit dipped by 3.2% in Q1FY25 compared to PAT of Rs 12,502 crore in Q4FY24.

This was not the case with the top-line front which was broadly healthy. In Q1FY25, consolidated revenue from operations stood at 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 earnings was largely driven by robust growth in business in India despite a decline in constant currency revenue in North America.

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.

What Should Investors Do In TCS Shares after Q1?

Prashanth Tapse, Senior VP (Research), Mehta Equities said, "Tata Consultancy reported its first quarter earnings and looks like it is beating street estimates. The net income stood at 120.4 billion rupees, up +8.8% y/y, vs an estimated 119.59 billion rupees by Bloomberg Consensus while revenue stood at 626.1 billion rupees, up +5.4% y/y vs an estimated 621.28 billion rupees witnessed slower rate. All major markets and verticals have returned with sequential growth."

Tapse added, "Overall the frontline numbers look like the worst is behind us and we may see a revival in the IT sector from Q1 earnings."

On the valuation, Tapse said, "Technically, TCS is trading significantly above its anchor VWAP support mark of 3900.00 on its daily time frame charts. With the stock making higher highs and remaining well above its immediate support level, it appears poised to reach the 4030.00 and 4050.00 levels. The RSI (14) around 51 indicates potential momentum in the upcoming sessions."

Hence, the analyst advises traders to maintain a strict stop loss at 3875.00, aiming for potential targets of 4030.00 and 4050.00.

There is also a dividend reward by TCS ahead. TCS has declared the first interim dividend of Rs 10 per share for FY25 at a face value of Rs 10 each. In FY24, TCS paid dividends of 7,300% amounting to Rs 73 per share. On the current market price, it has a dividend yield of 1.86%.

YTD, TCS share rose by nearly 3%, while in a year, the upside is nearly 20%.

Among the key fundamentals of TCS stock is that debt Equity Ratio is zero as the company is debt-free. While Mutual Fund Holding increased by 0.54% in the last quarter to 4.05. Further, the Price to Earning Ratio is 30.29, lower than its sector PE ratio of 34.36. Additionally, Return on Equity(ROE) for the last financial year was 50.73%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit, as per Trendlyne data.

A part of the Tata Group, India's largest multinational business group, TCS has over 601,000 of the world's best-trained consultants in 55 countries. The company generated consolidated revenues of US $29 billion in the fiscal year ended March 31, 2024, and is listed on the BSE and the NSE in India.

Disclaimer: The write-up is just for information purposes, and is not a recommendation to buy, sell or hold. We have not done fundamental or technical analysis and have no opinion on the stock mentioned. Neither, the author nor Greynium Information Technologies should be held liable for any losses. Please consult a professional advisor.