Most brokerages bullish on TCS post Q3; CLSA upgrades to 'Outperform'

Brokerages upbeat post TCS Q3 results: Most of the global as well as domestic brokerages are upbeat on India’s largest IT services provider, TCS, following its December quarter of financial year 2025 (Q3FY25) performance, which missed Street estimates.   On the bourses, TCS share price rallied as much as 6.44 per cent to hit an intraday high of Rs 4,296.80 apiece on Friday, January 10, 2025.

 

Tata Consultancy Services (TCS) reported revenue of Rs 63,973 crore for the quarter, reflecting a 5.6 per cent year-on-year (Y-o-Y) growth, or 4.5 per cent Y-o-Y growth in constant currency (CC) terms. Net income stood at Rs 12,380 crore, reflecting a 5.5 per cent Y-o-Y increase. However, the company missed Bloomberg estimates, which had forecasted revenue at Rs 64,748 crore and net profit at Rs 12,534 crore.

 

The operating margin for the quarter was 24.5 per cent, a decline of 50 basis points (bps) Y-o-Y but an improvement of 40 bps sequentially. 

 

Growth was primarily driven by the Consumer Business Group (+1.1 per cent), Energy, Resources, and Utilities (+3.4 per cent), and Regional Markets (+40.9 per cent). Among geographies, growth markets performed robustly, with India leading at +70.2 per cent, followed by the Middle East & Africa (+15.0 per cent), Latin America (+7.0 per cent), and Asia Pacific (+5.8 per cent).

 

The total contract value (TCV) for the quarter stood strong at $10.2 billion, against $8.6 billion in Q2. The LTM IT services attrition rate was recorded at 13.0 per cent.

 

K Krithivasan, chief executive officer (CEO) and managing director (MD), said, “We are pleased with the excellent TCV performance in Q3 which was well-rounded across industries, geographies and service lines lending good visibility to long-term growth.”

 

TCS announced a dividend of Rs 76 per share, which includes a special dividend of Rs 66. The record date for the dividend is January 17, 2025, with payment scheduled for February 3, 2025.

 

“In a quarter that saw significant cross-currency volatility, TCS’s strong execution, cost management and deft currency risk management helped deliver healthy margin improvement and free cash flows. Disciplined investments in talent and infrastructure should lend good support to long-term business growth,” said Samir Seksaria, chief financial officer (CFO).

 

Buy, sell or hold? What do analysts suggest?

 

Analysts have mixed views on TCS following its Q3FY25 performance, with several brokerages highlighting the company’s growth potential despite near-term challenges.

 

Hong Kong-based CLSA upgraded TCS to ‘Outperform,’ raising its target price to Rs 4,546, citing strong growth prospects and improved demand, despite a challenging third quarter, according to reports. The New York-headquartered Jefferies reiterated a ‘Buy’ rating with a target of Rs 4,760, highlighting management's optimistic outlook, margin improvement potential, and attractive valuation. Similarly, Bernstein maintained its ‘Outperform’ rating, for a target price of Rs 4,700.

 

In contrast, Tokyo-based Nomura maintained a ‘Neutral’ stance, slightly lowering its target to Rs 4,020 (Rs 4,050 earlier), pointing to mixed Q3 results and uncertain growth visibility for FY26. 

 

According to reports, the London-headquartered HSBC kept a ‘Hold’ rating with a target of Rs 4,540, acknowledging optimism for CY25 while cautioning about downside risks in FY26, especially from European market pressures and the BSNL deal.

 

Domestic brokerages have also weighed in. Emkay noted a weaker-than-expected Q3 operating performance, with revenue declining 1.7 per cent Q-o-Q, though deal wins improved to $10.2 billion. The firm acknowledged early signs of revival in discretionary spending and retained an ‘Add’ rating with a target price of Rs 4,500, citing attractive valuations post recent underperformance. 

 

Nuvama called TCS’s Q3 results modest but highlighted strong deal flow and improved management commentary. Despite trimming earnings per share (EPS) estimates for FY25/26, the firm retained a ‘Buy’ rating with a higher target price of Rs 5,200, supported by valuation roll-forward and optimism for stronger growth in CY25.  Analysts at Kotak Institutional Equities noted that TCS reported flat revenues and a 40 basis points increase in Ebit margin, aligning broadly with their estimates. Deal TCV saw major quarter-on-quarter and year-on-year growth, even without the contribution of mega deals, suggesting an uptick in smaller-sized deals. The outlook appears promising, with various verticals showing advanced stages of recovery, laying a foundation for growth acceleration in FY2026, excluding BSNL. Reflecting the quarter's underperformance, the analysts revised their FY2025-27E EPS estimates downward by 1-3 per cent. However, the company's strengths—its comprehensive service model, strong execution capabilities, and excellent positioning to leverage Generative AI—continue to inspire confidence. The analysts retained their ‘Add’ rating with a revised fair value of Rs 4,550 (previously Rs 4,500), valuing the stock at 27X FY2027E EPS. 

According to those at JM Financial, TCS’ results showed a weaker Q3, as expected, but were offset by several positives. Deal wins improved, boosting LTM book-to-bill to 1.3x, with granular, widespread deals and reduced leakages (ex-BSNL), signalling stronger revenue conversion and consistent growth ahead. 

 

Faster deal decision cycles also support management's confidence in a better CY25 and FY25 outlook despite the BSNL contract transitioning from a tailwind to a headwind. Hence, analysts have raised their FY26E cc revenue growth forecast to 5 per cent (from 4.4 per cent) and maintained margin estimates conservatively, though execution efficiency could provide upside. 

 

With improved visibility and potential for premium restoration, analysts have increased the target price to Rs 4,680, from Rs 4,230, and have upgraded the stock to ‘Buy.’

 

While near-term triggers may be limited, the overall sentiment reflects confidence in TCS’s long-term growth potential amid improving discretionary spending and a robust order book.