TCS share price targets see cuts despite Q1 profit beat; here's why

TCS Q1 results review: A couple of brokerages cut their target prices on Tata Consultancy Services (TCS), as sales growth for the IT major disappointed, even as profit came in better than the Street expectations. The BSNL deal ramped down sharply, but International business was largely stable, analysts said as they kept their 'Neutral' or 'Buy' rating on the stock intact.  

Equirus Capital said TCS' revenue degrowth at 3.3 per cent sequentially in constant currency (CC) terms was against its expectations of a 0.4 per cent QoQ drop in CC terms. International sales for Q1 fell 0.5 per cent in CC terms despite sluggish performance in FY24 & FY25. Equipment and Software cost decreased materially to 1.14 per cent of sales from 4.26 per cent QoQ. This it said implies services and other business growth of just 0.1 per cent QoQ in CC terms.

Nuvama reduced its target on the stock to Rs 3,950 from Rs 4,050 earlier. Nomura India cuts its target on TCS to Rs 3,780 from Rs 3,820. UBS also reduced its target on TCS to Rs 3,950 from Rs 4,050.

"Growth for TCS remains elusive. That said, sequentially the headwind from the BSNL ramp-down is now manageable, and there is enough slack in the pyramid to drive margin gains through the year. Valuations are undemanding, and we reiterate our Buy rating on TCS with a target of Rs 3,850, implying a 14 per cent potential upside," MOFSL said.

Nuvama expects the demand environment to stay challenging for TCS in the next one–two quarters due to macro uncertainty. But the brokerage stayed positive on medium-to-long term TCS outlook as technology debt is very high for enterprises, which will warrant a revival in spending as macro improves. 

"TCS, post recent underperformance, appears to be attractive—trading at 21.5x FY27—in line with its long-term average multiple," Nuvama said.

TCS' deal wins came in at $9.4 billion for the quarter, up 13.3 per cent YoY, which were well distributed across verticals and geographies. The management is seeing a delay in decision-making and higher scrutiny of discretionary projects across verticals driven by the tariff uncertainty. It continued to guide for higher growth in international markets in FY26 (than FY25) and is targeting a margin improvement in coming quarters even as the timing of this year’s wage hike (last awarded in Q1FY25) has not yet been decided.