TCS share price likely to open in green after Q1 results, India biz revenue strengthens show: Analysts

TCS Q1 Results: Tata Consultancy Services (TCS) kicked off the April-June quarter results for fiscal 2024-25 (FY25) on Thursday, July 11, reporting a rise of 8.7 per cent in its consolidated net profit at ₹12,040 crore, compared to ₹11,074 crore in the corresponding period last year. India's largest information technology (IT) services provider has beaten most D-Street estimates regarding net profit and segment revenue growth during the quarter under review.

The Tata Group IT giant, the first among the Indian IT majors to declare the first quarter earnings of the current fiscal, reported revenue growth of 5.4 per cent to ₹62,613 crore, compared to ₹59,381 crore in the year-ago period. On a quarter on quarter (QoQ) basis, TCS revenue grew 2.2 per cent in the June quarter, which was driven by its growth in the India business segment.

TCS Q1 Results - Key Metrics

TCS reiterated that it feels FY25 will be better than the previous fiscal year for the business. K Krithivasan, TCS's Chief Executive Officer (CEO) and Managing Director (MD) said that the IT major will create new capabilities in emerging technologies and invest in innovation, including a new artificial intelligence (AI)- focused TCS PacePort in France and an IoT lab in the US.

TCS revenue from North America declined by 1.1 per cent, leading to the share of the largest market slipping to 49.5 per cent in the pie. Revenue from India grew 61.8 per cent, driven by the 4G network rollout work that TCS is doing with the state-run telecom operator, Bharat Sanchar Nigam Ltd (BSNL).

Responding to a question on three-fourths of the incremental revenue growth coming from BSNL in the June quarter, TCS CEO Krithivasan said that while BSNL did grow well, non-BSNL revenues had a substantial part in this growth when compared to the preceding March quarter of FY25.

TCS reported new deal wins of $8.3 billion in the June quarter, out of which $4.6 billion were from North America and $2.7 billion came from the BFSI vertical. The new wins or total contract value (TCV) were much lower than in the quarter-ago and year-ago periods, but the CEO said the company is comfortable with a quarterly figure in the range of $7-9 billion.

On the headcount front, TCS added employees at a net level for the first time in multiple quarters, with the overall strength going up by 5,452 to nearly 6.07 lakh professionals. The IT services giant also announced an interim dividend of ₹10 per equity share and kept August 5 as the record date for the same.

TCS Q1 Results: D-Street experts eye positive returns from IT pack

Regarding TCS results, Manish Chowdhury, Head of Research at the domestic brokerage Stoxbox, said the TCS numbers are a "mild surprise" on the upside. They added that they will monitor BSNL deal ramp-up, demand trends for the industry in the medium term, and deal wins going forward.

‘’The lowering of attrition and net headcount addition are major positives and augur well for the company’s utilization levels and, subsequently, its EBIT margin. Despite wage hikes in the quarter, TCS reported a beat on EBIT margin estimates. These positives are bound to lead to an upward revision in EPS estimates, but not so much on the revenue side,'' said Chowdhury.

Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas, called it a "solid" quarter with strong revenue growth. "Expecting an overall demand recovery in second-half of FY25 (for the Indian IT sector) as most of the headwinds are bottoming out, while FY26 will be a full-blown recovery," Hota said.

With the wage hike behind, TCS management believes the EBIT margin trend will move towards the aspirational 26-28 per cent band. The management commentary indicated order pipeline continues to stay healthy and current moderation was in line with normalized order TCV of $7-9 billion, according to Hota.

TCS Q1 numbers augur well to improve the sentiments for IT stocks, according to the analyst, and the brokerage expects positive rubs off on the overall sector. “We have a ‘Buy’ rating on the stock,” said Hota on TCS. Indian IT companies, which earn a significant share of their revenue from US, stand to benefit from a likely early rate cut in the world's biggest economy, according to analysts.

Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, also responded to TCS results and said, “All major markets and verticals have returned with sequential growth. Overall, the frontline numbers look like the worst is behind us, and we may see a revival in the IT sector from Q1 earnings.”

According to analysts, the key monitorables for TCS going forward are as follows:
-Updates on the BSNL deal ramp-up
-Medium-term industry demand trends and the impact of macro headwinds on demand
-Deal wins and deal pipeline
-Revenue growth and margin outlook for FY25
-Investments in GenAI partnerships.

Technical View

Technically, TCS stock is trading significantly above its anchor VWAP support mark of ₹3,900.00 on its daily time frame charts. With the stock making higher highs and remaining well above its immediate support level, it appears poised to reach the ₹4,030.00 and ₹4,050.00 levels, according to Tapse.

“The RSI (14) around 51 indicates potential momentum in the upcoming sessions. We advise traders to maintain a strict stop loss at ₹3,875.00, aiming for potential targets of ₹4,030.00 and ₹4,050.00,”aid Tapse.

Analysts' comments suggest that the TCS share price will likely open higher on Friday, July 12. Ahead of the announcement of Q1 results on July 11, shares of TCS settled 0.33 per cent higher at ₹3,922.70 apiece on the BSE. In the last month, shares of TCS have given investors 1.68 per cent returns and 19.92 per cent in the last one year.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.