Tata Consultancy Services (TCS) share price traded higher on Friday and remains one of the top performing IT stocks in 2024 so far. TCS share price has rallied nearly 19% year-to-date (YTD), outperforming the benchmark Nifty 50 index that is up over 15% this year. TCS stock price is just tad away from its 52-week high level of 4,585.90 per share hit on September 2.
TCS shares received a ratings upgrade from InCred Equities as the brokerage firm believes the country’s largest IT services company is best placed to play growth and margin trade-off.
InCred Equities noted that TCS’ growth was broad-based as both North America (NA) and the financial services (FSI) verticals witnessed incremental revenue addition in the April-June quarter of FY25, a first since Q3FY23 and Q4FY23.
“Recent discussions suggest portfolio leakages are getting arrested, small discretionary deals are back in the market, visibility in Europe is limited but the UK / US are good / recovering, and it’s better in APAC and other regions. Elsewhere, life sciences, manufacturing, energy resources & utilities, retail ex-travel verticals continue to do well and/or are recovering,” InCred analyst Abhishek Shindadkar said in a note.
TCS’ Q1FY25 order bookings at $8.3 billion were down 37.1% QoQ and by 18.6% YoY driven by weakness in FSI (TCV down 34.1%/10%), consumer (down 31.3%/8.3%) & North America (down 19.3%/11.5%).
However, the analyst believes Q1 may not be a representation of full year FY25. Further, Q1 commentary was relatively better led by the improving prospects across markets and verticals, healthy deal pipeline and rising GenAI momentum.
“However, what is of interest to us is an update to TCS’ 1QFY25 earnings commentary of the “average tenure of pipeline slowly inching less” as it could improve near-term growth acceleration,” Shindadkar noted.
TCS started FY25 with Q1 margin being at least ~150 bps higher than in Q1FY23 / Q1FY24 which, coupled with levers such a benign supply side environment, productivity, utilization, employee pyramid correction, and optimized sub-contractor costs provide enough reinvestment cushion to gain market share, despite headwinds from higher third-party expenses & large deal transition costs, he added.
Hence, the brokerage firm raises average FY25F-FY27F margin assumption by 10 bps to 25.7%.
InCred Equities adjusts its estimates modestly and now expects FY25F-27F USD revenue CAGR of 7.5% versus 7.2% earlier and PAT (Rs) CAGR of 11% from 10.8% earlier. It increases target PE/G multiple to 2.6x to arrive at target P/E of 28x FY27F EPS given the certainty about operating cash flow, strong dividend payout ratio and healthy return ratios.
The brokerage firm upgraded TCS shares to ‘Add’ rating from ‘Hold’ previously and raised the target price to ₹4,915 per share from ₹4,039 earlier. TCS share price target implies an upside potential of nearly 10% from Thursday’s closing price.
“TCS share price is currently trading in a sideways range of ₹4,440 – ₹4,560 and showing an uptrend over the past few months. TCS stock has been forming higher highs and higher lows, indicating bullish momentum. The stock has seen selling pressure from its all-time high. If the price manages to close above the ₹4,600 level, it could potentially reach short-term targets of ₹4,800 and ₹4,900,” said Mandar Bhojane, Equity Research Analyst at Choice Broking.
According to him, on the downside, immediate support is located at ₹4,350, which could present buying opportunities. The Relative Strength Index (RSI) is currently at 56.50, indicating that the stock is in the bullish zone. To manage risk prudently, it is advisable to set a stop-loss at ₹4,200 to protect against an unexpected market reversal, he added.
“In summary, considering the technical analysis and current market conditions, TCS presents an appealing buying opportunity for those targeting ₹4,800 and ₹4,900, provided that appropriate risk management measures, such as setting a stop-loss, are in place,” Bhojane said.
At 10:10 am, TCS shares were trading 0.19% lower at ₹4,472.00 apiece on the BSE.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
