TCS share price targets: No pick-up in H2? Here's what analysts say on IT stock

Tata Consultancy Services Limited (TCS) June quarter results could not spring surprises. While the deal momentum remained strong, there was no hint of recovery in the second half (H2) of the ongoing financial year. Near-term visibility stays low.

"We continue to believe that the worst on the macro front is ahead of us and not behind us and that one should be prepared for downward revisions to FY25 estimates as the recession gets pushed back to 1H2024," said Nirmal Bang Institutional Equities.

Jefferies finds the stock worth Rs 3,450. Morgan Stanley maintained its equal weight on the stock with a target of Rs 3,305; Nomura India has a target of Rs 2,800 on the stock while JPMorgan has suggested a target price of Rs 2,650 on the IT scrip.

The key positive for the quarter was TCS' big beat on order inflow of $10 billion without even taking the BSNL deal into consideration. "From a 23.2 per cent EBIT margin, it indicated clawback to higher levels through the year, though we suspect the end point might not be as high as 25 per cent," Nirmal Bang said. The brokerage has a target of Rs 2,691 on the stock. 

TCS remains cautious about near-term demand amid adverse macros, while it is quite optimistic about the secular long-term trend. The weakness persists in verticals like BFS, Communication and Retail due to a slowdown in discretionary spending, while the focus is shifting to efficiency-driven projects. The management also indicated that the small deals are getting scrutinised and taking more time to ramp up.

"While we have trimmed our estimates for FY24, we continue to expect TCS to deliver superior growth in the near term among our Tier 1 coverage on account of its leadership in cost efficiency, which has resulted in strong inflows for the last two quarters. We expect the trend to continue, providing better visibility for FY25 revenue growth despite an uncertain demand environment. We factor in a dollar revenue CAGR of 10.7 per cent over FY23-25E," said Motilal Oswal Securities. This brokerage has a target of Rs 3,790 on the stock.

Nuvama Institutional Equities, which has a target of Rs 4,000 on the stock, said the strong deal flow momentum, despite the uncertainty in decision-making process, reinforces its positive stance on the sector.

"Given revenue deceleration in FY24, impacted by cut in discretionary spending, is already known and priced in, we expect growth to bounce back in FY25, for the entire sector, driven by a sustainable strong demand environment. TCS shall be one of the biggest beneficiaries of this demand, driven by its capabilities in winning transformational as well as cost takeout deals – as manifested in its deal-wins in Q1," it said.

TCS reported a 16.83 per cent year-on-year (YoY) rise in net profit at Rs 11,074 crore for the June quarter compared with Rs 9,478 crore in the same quarter last year. The profit growth figure came largely in-line with analyst estimates of 15-20 per cent.

Revenue for the quarter came in at Rs 59,381 crore, up 12.55 YoY over Rs 52,758 crore in the same quarter last year. Revenue growth in constant currency terms grew 7 per cent YoY, TCS said.

Ebit margin for the quarter came in at 23.1 per cent, up 10 basis points YoY. That said margin contracted 130 basis points sequentially due to salary hikes during the quarter.

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