While not ruling out concerns relating to demand and growth outlook, brokerages are broadly optimistic that IT major Tata Consultancy Services (TCS) is well positioned for recovery in the coming quarters driven by AI/GenAI projects and recent deal ramp-ups.
The major concerns relate to the decline in revenues from North America and Latin America, which fell by 1.7% and 3.2% quarter-on-quarter respectively. North America alone contributes nearly 50% to TCS’s revenue each quarter.
On Friday, the company’s shares fell nearly 3% intra-day to end 2% lower on the National Stock Exchange at Rs 4,146. However, most of the other IT stocks traded in the green.
The IT company’s performance was primarily driven by growth in the Indian market, which surged over 21% quarter-on-quarter. In contrast, UK and Europe markets recorded modest growth of 2.8% and 3.6%, respectively, influenced by specific client issues.
Motilal Oswal Financial Services found the decline in North America surprising and said there is limited positive outlook beyond what was seen in the previous quarter, with geopolitical and macroeconomic uncertainties potentially limiting the scope of recovery.
Further, Nuvama Institutional Equities adjusted its fiscal 2025 and 2026 earnings per share due to expectations of slightly lower growth and margins. The brokerage also revised its target price for TCS to Rs 5,100 from Rs 5,250, but maintained its ‘BUY’ rating on the stock.
On Thursday, TCS reported a 2.6% sequential growth in its consolidated revenue to Rs 64,259 crore in July-September, beating the Street estimate of Rs 64,178 crore as polled by Bloomberg. However, the bottomline declined 1% to Rs 11,909 crore, and was below analysts’ expectation of Rs 12,547 crore.
Further, the operating margin fell 60 basis points quarter-on-quarter to 24.1%.
“We expect gradual improvement in the demand environment going ahead,” Centrum Broking said and also increased the target price to Rs 4,777 from Rs 4,175, while retaining its ‘Add’ rating.
On similar lines, Choice Broking noted that TCS is significantly investing in expanding its presence in emerging growth markets, with client interest in GenAI contributing positively.
Emkay Global highlighted signs of demand improvement, particularly in the BFSI sector in North America. However, the brokerage noted that weak discretionary spending, client-specific issues, and slower decision-making processes have hindered revenue growth and maintained a ‘Reduce’ rating with a target price of Rs 4,500 per share.
From: financialexpress
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