36 'Buy', 11 'Hold' and 3 'Sell' ratings: Here's fresh target price for TCS

InCred Equities released a report on Tata Consultancy Services (TCS) regarding its FY25 annual report, shedding light on the IT firm's strategic directions and stock recommendations. At present, there are 36 'Buy' calls, 11 'Hold' recommendations, and three 'Sell' recommendations on TCS.

InCred Equities maintained its FY25-27 estimates of dollar revenue CAGR of 3 per cent  and PAT CAGR of 7.5 per cent. It suggested 'ADD/ rating on the stock, valuing TCS at 23 times FY27F EPS to arrive at a target price of Rs 3,589. Better operating cash flow, dividend payout ratio certainty, and healthy return ratios support valuation while a slower recovery in North America & the FSI vertical, weak bookings, and higher project cancellations are downside risks, it said.

TCS's focus on technology transformation is evident in its FY25 annual report, which addresses the paradigm shift towards Generative AI (GenAI). The company has launched an enterprise-grade GenAI platform, WisdomNext, which is designed to accelerate AI adoption through a unified interface that compares models and tools across cloud services. This move represents TCS's commitment to maintaining its competitive edge in AI-driven solutions.

InCred Equities highlighted significant organisational changes, noting that effective 1 May 2025, Ms. Aarthi Subramanian has been appointed as Executive Director-President and COO, while Mangesh Sathe will serve as Chief Strategy Officer. These appointments are anticipated to bolster TCS's strategic and operational capabilities, given their extensive experience within the Tata Group.

TCS's FY25 report indicated a rise in related party revenue, which increased by 22.4% to Rs68.2bn, significantly driven by a 26.2% year-on-year growth in Jaguar Land Rover (JLR) contributions. This growth underscores the company's expanding relationship with its affiliates and their impact on overall revenue.

InCred Equities reports that TCS's cash conversion metric and payout metric remain robust, with related party transactions seeing significant growth. The report states: "Related party revenue was up 22.4% at Rs68.2bn (2.7% of overall revenue) led by 26.2% yoy growth in JLR (Rs36.6bn)."

Looking forward, TCS anticipates that current uncertainties may lead to longer decision cycles and increased scrutiny on discretionary spending. Nonetheless, the company continues to innovate, with initiatives such as GenAI-based drug discovery and transforming airline operations with AI-equipped platforms. These initiatives highlight TCS's ongoing commitment to leveraging AI across various sectors.

Overall, while challenges remain, TCS's focus on AI and strategic leadership changes indicate a proactive approach to navigating the evolving tech landscape. InCred Equities remains cautiously optimistic, reflecting confidence in TCS's ability to adapt and thrive in a rapidly changing environment.