TCS Q1 results: Should you buy this IT stock now? Share price targets post June quarter beat

Tata Consultancy Services Ltd (TCS) kicked started the June quarter results with a beat despite a challenging quarter. The Q1 revenue exceeded expectations, margin was solid despite wage hikes and headcount expanded after six consecutive quarters of decline or flattish growth. Analysts said the management sounded positive on the recovery in the BFSI and bottoming out of the retail vertical. Banking clients in the US returned but the nature of demand was largely the same, with clients prioritising cost optimisation projects. Order wins were muted. For now, TCS is a 'Buy' recommendation from stock analysts.

"We maintain that the earnings downgrade cycle for the sector is behind and reckon the strong deal wins of the last few quarters, shall gradually convert into revenue in coming quarters, even as US macro becomes favourable (read our recent report here). We see TCS as a perfect large-cap proxy to play this upcycle, with its strong deal wins and robust margin performance," Nuvama Institutional Equities said while suggesting a target of Rs 4,800.

MOFSL said while growth was driven by the BSNL deal ramp-up, verticals in key markets such as communications and retail continued to be weak. The 4 per cent decline in communications was concerning, as there was a growing consensus that spending cuts in the sector had bottomed out after a weak FY24, the domestic brokerage said.

"A fed pivot is probably a meaningful catalyst for telecom clients, but we believe a more meaningful turnaround in this vertical could only be seen once network rollout capex trickles down to services spending/opex. This could be more gradual even in case of rate cuts, in our opinion," it said.

With wage hikes executed in Q1, this brokerage believes that major headwinds to margins are now behind  and TCS should deliver full-year Ebit margin of 25.4 per cent in FY25, up 70 bps.

"We have broadly maintained our FY25/FY26 EPS estimates. Over FY24-26E, we expect a USD revenue CAGR of 6.9 per cent and an rupee EPS CAGR of 10.9 per cent. Our target price of Rs 4,660 implies 30 times FY26E EPS, with a 19 per cent upside potential. We reiterate our BUY rating on the stock," it said.

The total contract (TCV) at $8.3 billion for 1QFY25 was disappointing after $13.2 billion in 4QFY24 -- the highest ever quarterly TCV. The management stated that it is a timing issue with some deal closures getting spilled over into 2Q. Further, TCV still remains in the guided range of $7-9 billion.

"After seeing a reduction of 13,772 employees in the past three quarters, TCS finally saw a net addition of 5,452 employees on a QoQ basis. It also onboarded 11,000 freshers during the quarter. This remains a positive variable supporting TCS’ healthy deal pipeline and is looking to maintain strong headcount in order to focus on
execution," Nirmal Bang Institutional Equities said.

While Nirmal Bang believes that TCS can deliver sustainable earnings growth, the best margins, strong ROICs and healthy cash flows in the Tier-1 space, it sees FY25-FY27 revenue CAGR at 10.3 per cent. It values TCS at 27 times June 2026E EPS.

Antique Stock Broking, meanwhile, has retained 'Hold' recommendation on the stock but raise its price target on TCS to Rs 4,275 from Rs 4,250 as a result of 1 per cent increase in FY26/ 27 EPS due to better than expected Q1 results.