TCS gets thumbs up from brokerages over robust earnings

Brokerages turned mixed on Tata Consultancy Services (TCS) after the company reported a 9 per cent growth in net profit at ₹12,434 crore in the January-March quarter of FY24, driven by growth in domestic and UK business. Though most of them see only a little headroom for the stock, analysts at BNP Paribas and Motilal Oswal were the most bullish with a price target of ₹4,640 and ₹4,600, respectively. TCS also announced a final dividend of ₹28 a share for FY24. 

Shares declined by 1.66 per cent on the NSE to trade at ₹3,875.95 on Tuesday. The stock hit a 52-week high on March 18 at ₹4,254.75.

Analysts of Prabhudas Lilladher said the company’s business mix is favourable to the current enterprise spends that are diverted to stimulate core business functions or bring efficiency in operations. TCS is well positioned to capture those spends and win disproportionately among its peers, which is evident during the quarter. The brokerage pegs TCS’ revenues/earnings CAGR at 8.1 per cent/11.5 per cent over FY24-FY26e.

Assigning ‘Accumulate’ rating for the stock, Prabhudas Lilladher said, “The stock is currently trading at 25x FY26e, we are assigning P/E of 27x to FY26e with a target price of ₹4,360.”

JPMorgan has upgraded the stock to ‘overweight’ and increased the price target to ₹4,500 from ₹4,000.

Brokerage firm Motilal Oswal, reiterating ‘Buy’ rating, said: “Over FY24-26E, we expect a revenue CAGR of 10 per cent and an EPS CAGR of 15 per cent.”

It expects the IT major to benefit in FY25 from the BSNL deal execution. But continued uncertainty on growth pickup in North America and Europe is likely to weigh on overall growth.

Analysts of Emkay Global retained ‘reduce’ rating for the stock, given the rich valuations; nevertheless, it increased the target price to ₹3,950 from ₹3,900 at 25x Mar-26E EPS. It increased FY25-26E EPS by 1-1.5 per cent, factoring in the FY24 performance and higher margin assumptions.

According to InCred Capita, “We retain our Hold rating on TCS, but tinkering of estimates and a modest increase in the target PE/G to 2.1x (vs. 2x earlier; translating to a P/E of 25.4 vs. 23.7x earlier) to account for operating cash flow certainty, increases our target price.”

Improved order-book conversion and faster BSNL deal ramp-up are upside risks while an increase in project cancellations is a downside risk, it added.