TCS’s Q1 shares surged on Friday, July 12th, following the company’s better-than-expected performance in the April-June quarter (Q1FY25). The stock price rose almost 3% in early deals, reflecting investor confidence despite some lingering concerns.
On Thursday, July 11th, TCS announced an 8.72% year-on-year (YoY) increase in consolidated net profit, reaching ₹12,040 crore for Q1FY25. This represents a positive step compared to the ₹11,074 crore profit reported in the same quarter last year. Revenue from operations also saw positive growth, rising 5.4% YoY to ₹62,613 crore, compared to ₹59,381 crore in Q1FY24. Notably, constant currency (CC) terms showed a 4.4% YoY growth in revenue.
TCS’s Q1 Analyst Reactions: Mixed Bag with Upgrade Calls
Several market experts viewed TCS’s Q1 performance as exceeding expectations. They highlighted the company’s strong position for future growth despite a challenging economic environment.
Sanjeev Hota, research head at Sharekhan by BNP Paribas, praised TCS’s “solid quarter” and strong revenue growth (2.2% QoQ in CC terms) surpassing his estimates. While margins declined slightly due to wage hikes, the impact was less severe than anticipated.
“These Q1 numbers are a positive sign for IT stocks as a whole,” stated Hota. “We maintain a buy rating on TCS. With wage adjustments behind them, management anticipates an upward trend in EBIT margin, potentially reaching the aspirational 26-28% range.” However, Hota noted a moderation in order book Total Contract Value (TCV) to $8.3 billion, following a record-breaking Q4FY24. He emphasized that management considers this a natural fluctuation, with the order pipeline remaining healthy.
Manish Chowdhury, research head at StoxBox, observed a “mild positive surprise” in TCS’s Q1 results. The sequential CC revenue growth of 2.2% suggested an improving business climate in the US market. “Large deals secured last year are translating into revenue, along with the ramp-up of the BSNL deal,” Chowdhury explained. He also highlighted the decline in employee attrition and a net increase in headcount as positive signs for utilization levels and future EBIT margins.
Investment Recommendations: Maintain or Buy with Cautious Optimism
Following the Q1 earnings report, most brokerage firms maintained their previous stances on TCS stock. While some see signs of a potential revival, others advise caution.
Motilal Oswal Financial Services reaffirmed their buy call on the stock with a target price of ₹4,660, indicating a 20% upside potential. They emphasized TCS’s strong position due to its size, robust order book, and exposure to long-term contracts. Additionally, they commended the company’s industry-leading margins and superior return ratios.
Kotak Institutional Equities maintained an “add” call with a fair value of ₹4,500. While they acknowledged TCS’s revenue growth, driven by BSNL and other large deals, they expressed concern regarding the muted TCV and growth in key market segments. However, they noted an improvement in discretionary demand within the US banking sector and acknowledged TCS’s consistent growth and strong return on invested capital (RoIC) profile.
Looking Forward: Key Factors to Monitor
Investors should keep an eye on several key metrics as TCS navigates the coming quarters. These include:
- Deal wins and the overall health of the deal pipeline.
- Updates on the BSNL deal ramp-up.
- Medium-term industry demand trends.
- Revenue and margin outlook for FY25.
- Investments in GenAI partnerships.
By closely monitoring these factors, investors can make informed decisions regarding their TCS holdings. While the immediate future appears cautiously optimistic, long-term growth prospects seem promising.
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