Tata Consultancy Services (TCS) has reported strong performance in deal wins during the September quarter, surpassing analyst expectations. The company has also announced a share buyback worth Rs 17,000 crore and a second interim dividend of Rs 9 per share. Furthermore, TCS has exceeded Street estimates for its EBIT margin. However, the mood was dampened by the flat constant currency (CC) revenue growth. Analysts have observed that the compression in TCS’s existing book of business outpaced the growth in new projects. Additionally, two of TCS’s significant projects in Europe have concluded, and there are no large-scale deals to replace them.
TCS has mentioned that its clients are exercising caution, echoing similar sentiments from the management three months ago. The company has refrained from providing guidance on when a turnaround might occur or whether the second half of FY24 will outperform the first half. This lack of visibility has left analysts cautious, with Nirmal Bang setting a target of Rs 2,930 for the stock.
During the quarter, TCS reported a dollar revenue of $7,210 million, representing a 0.2 percent sequential decline. The constant-currency growth stood at 0.1 percent sequentially, falling short of analysts’ expectations, which ranged from 0.8 to 1.3 percent growth.
Kotak Institutional Equities noted that the near-term outlook is weak and disappointing but does not erode hopes for a better FY2025. The new CEO has made limited changes, primarily returning to a vertical-based organizational structure. The stock continues to trade at premium valuations, justifiable but limiting significant short-term upside.
Nomura India pointed out that while the order book remains steady, near-term visibility remains uncertain. Weak headcount additions persist, despite moderate attrition. As a result, this brokerage has a ‘Reduce’ rating on TCS with a target price of Rs 3,030.
Motilal Oswal believes that TCS can leverage its scale and talent optimization to control costs in the near to medium term. The company’s ability to provide timely increments, despite growth concerns, is expected to help mitigate attrition and lead to a 12.2 percent PAT CAGR over FY23-25. Nevertheless, the brokerage has slightly reduced its FY24 EPS estimate by 0.7 percent and its FY25 EPS estimate by 1.8 percent, setting a target of Rs 4,060 for the stock.
Various financial institutions have different target prices for TCS stock. Goldman Sachs targets Rs 4,020, HSBC values it at Rs 3,625, Morgan Stanley has reduced its target to Rs 3,590, and Bernstein sees it at Rs 3,950. Citi maintains a sell rating on the stock with a target of Rs 3,170.