Brokerages see up to 19% upside in TCS on robust Q1 performance
Shares of IT bellwether Tata Consultancy Services (TCS) climbed over 3% in early trade on Friday after the country’s largest software exporter reported better-than-expected earnings in the first quarter ended June 30, 2024. The sentiment was further lifted after most brokerages remained bullish on the IT heavyweight and raised target price to up to ₹4,660, a potential upside of around 19% from Thursday’s closing price of ₹3,922.70.
Boosted by strong Q1, TCS shares opened higher after snapping two sessions losing streak. The country’s most valued IT stock started the day at ₹4,001.15, up 2% against the previous closing level on the BSE. In the first hour of trade, the stock gained as much as 3.2% to ₹4,049.45, while the market capitalisation rose to ₹14.63 lakh crore.
The shares of TCS are inching close to their 52-week high of ₹4,254.45 touched on March 18, 2024. The IT heavyweight touched its 52-week low of ₹3,273.05 on July 13, 2023. The counter has underperformed in the last one year because of uncertainty over order flows amid a fragile global economic environment. TCS shares have risen nearly 23.3% in a year as compared to 31% rally in the BSE IT index. The stock gained 6.3% in the calendar year 2024 versus 8% growth in BSE IT index.
TCS kicked-off June quarter earnings season on Thursday, posting 8.7% growth in consolidated net profit at ₹12,040 crore in Q1 FY25, compared to ₹11,074 crore in the same period last year. Sequentially, profit was down 3.2% from ₹12,434 crore in March quarter of FY24, due to the impact of the annual wage increments during Q1 FY25.
The revenue from operations rose 5.4% YoY to ₹62,613 crore as against ₹59,381 crore in the year ago period. On quarter-on-quarter (QoQ), the revenue dropped 2.2% from ₹61,237 crore in Q4 FY24.
The consolidated operating margin for the June quarter of FY25 stood at 24.7%, up 1.5% YoY, while the net margin was at 19.2%.
Brokerages view on TCS Q1
Post Q1, ICICI Securities reiterated ‘ADD’ rating on TCS with a revised target price of ₹4,330 from ₹4,290 earlier. “We revise up our FY26/27E EPS by 1% each and our TP to ₹4,330(earlier ₹4,290). We reiterate ADD. Although management commentary on demand and discretionary spending still remains cautious, we reckon the upward slant of TCS’ Q1 result may have a positive rub-off on the sector,” it says in a note.
Motilal Oswal has also retained ‘Buy’ call on the stock with an upgraded target price of ₹4,660, an upside potential of 19% from the current price. “We have broadly maintained our FY25/FY26 EPS estimates. Over FY24-26E, we expect a USD revenue CAGR of 6.9% and an INR EPS CAGR of 10.9%. Our TP of ₹4,660 implies 30x FY26E EPS, with a 19% upside potential,” the brokerage says in a report.
Foreign brokerage Jefferies has also upgraded the stock to ‘Buy’ from ‘Hold’ with the target raised to ₹4,615 from ₹4,030 earlier, implying a potential upside of nearly 18%. Among others, JP Morgan and Morgan Stanley have maintained 'overweight' ratings with revised target prices of ₹4,600 and ₹4,480, respectively. While Goldman Sachs has given a ‘Buy’ call with a price target of ₹4,470, CLSA has assigned a ‘Hold’ rating with a target price of ₹4,007.
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