TCS shares jump 5% on 'modest' Q3 results, management commentary

Shares of Tata Consultancy Services (TCS) Ltd picked up strong momentum in Friday's trade after the IT major reported its third-quarter (Q3 FY25) results. The stock surged 4.73 per cent to hit a day high of Rs 4,227.70.

The largest IT services player posted an 11.95 per cent year-on-year (YoY) rise in its consolidated net profit, at Rs 12,380 crore, for the December quarter compared with Rs 11,058 crore in the same quarter last year. Net sales climbed 5.59 per cent to Rs 63,973 crore from Rs 60,583 crore in the corresponding period last year. Sales were up 4.5 per cent YoY in constant currency (CC) terms.

Operating margin during the quarter under review came in at 24.5 per cent, down 50 basis points (bps) YoY but up 40 bps sequentially. TCS reported total contract value of $10.2 billion, which was higher than $7-9 billion deal wins that analysts projected earlier. Book to Bill ratio stood at 1.4.

TCS said its net cash from operations stood at Rs 13,032 crore, i.e. 105.3 per cent of net income. The IT company said its trailing twelve-month IT services attrition rate came in at 13 per cent. At last count, TCS workforce strength stood at 6,07,354.

TCS also declared an interim dividend of Rs 9 per share and a special dividend of Rs 18 per share.

The company, in a post-earnings press conference, said it expects a revival in client confidence and discretionary spending in North America, a key market for IT companies.

"TCS reported modest Q3 FY25 numbers. Revenue was flat CC QoQ at $7,539 million, slightly below our and Street's estimate of 0.4 per cent CC QoQ growth. EBIT margin expanded 40bp QoQ to 24.5 per cent, in line with estimates. PAT at Rs 12,380 crore, too, was in line with estimates. Deal flow came in strong at $10.2 billion (+18.6 per cent QoQ/+26 per cent YoY)," Nuvama Institutional Equities said.

"Management commentary was most positive over last two years, as it guided to higher growth in CY25 than CY24, citing early signs of revival in discretionary spends. We are trimming FY25E/26E EPS by -1.8 per cent/-4.1 per cent mainly on lower other income (higher dividend), as we update FY26/27 USD-INR assumption to 86.5. We roll forward the valuation to 30x FY27E PE; retain 'BUY' with a target price of Rs 5,200 (earlier Rs 5,100)," the domestic brokerage added.