Can Q4 results lift TCS stock? Share price targets see uptick

IT major Tata Consultancy Services Ltd (TCS) has seen slight upward revision in earrings estimates for FY25, following its stable March quarter quarterly earnings. While the largest domestic software exporter expects FY25 to be a better year than FY24, analysts do not see any substantial improvement, as the management commentary still suggests customers are reducing scope of or pushing out existing contracts due to macro uncertainty.

Nuvama said TCS' dollar revenue at $7,363 million was up 1.1 per cent quarter-on-quarter (QoQ), broadly in line with the Street estimate of 1.4 per cent QoQ growth. EBIT margins expanded 100 basis points sequentially to 26.0 per cent(up 150 bps YoY), beating the Street expectation of 25.4 per cent. Deal flow also came in super strong at $13.2 billion.

But "the management remained cautious about near-term growth, as it continues to see volatility and discretionary spends on hold. Even so, it expects FY25 growth to be better than FY24, driven by the strong deal wins and their execution. We upgrade FY25E/26E EPS marginally (up 1.1 per cent/up 2 per cent) and maintain ‘BUY’ with a target price of Rs 4,560 (versus Rs 4,450 earlier) valuing it at 27 times FY26 PE," Nuvama said.

JPMorgan has upgraded the stock to overweight and suggested a target of Rs 4,500. Goldman Sachs finds it worth Rs 4,350. Jefferies has 'Hold' on the stock with the price target of Rs 4,030. UBS sees it at Rs 4,700, HSBC at Rs 4,540 and Morgan Stanley at Rs 4,350. Nomura has a low target of Rs 3,250 on TCS>

Nirmal Bang said TCS did not want to be drawn into a discussion on H1 vs H2 trajectory or when exactly

the turn in demand would happen in FY25. With subcontractor costs almost bottoming out at 4.86 per cent of revenue and headed higher in the coming quarters, TCS indicated that improved pricing will remain a key lever for incremental margin expansion.

"Utilization, productivity, and pyramid too will act as levers going forward. However, in the current challenging market conditions, we think getting meaningful price increases will be difficult," it said.

Nirmal Bang said it has tweaked its revenue and EPS estimates marginally upwards for FY25-FY27 considering the higher order wins and margin outperformance. But it maintained ‘SELL’ on TCS due to its rich valuation. The brokerage said the IT sector i sin a ‘slower for longer’ kind of a scenario.

"While we believe TCS can deliver steady growth, the best margins, strong ROICs and cash flows in the Tier-1 space, US$ growth beyond FY26 (when we see a pent-up demand driven spike) will settle at 5-7 per cent CAGR. We value it at 23.7 times March’26E EPS. 23.7 times is the historical 5-year mean less 1SD," it said.

Following the Q4 performance and signs of pent-up demand in specific verticals, Arihant Capital Markets' growth estimates for FY24-FY27E stood at 6 per cent in dollar terms. This brokerage sees margin of 24.9 per cent/25.3 per cent/25.5 per cent for FY25/FY26/FY27.

"We value TCS at a PE of 25 times its FY27E EPS of Rs 172.70, resulting in a revised target price of Rs 4,318 per share (earlier TP: Rs 3,997 per share).We maintain our Hold rating on the stock," it said.