TCS share price rises nearly 7% after Q1 result; what should be your strategy with the stock? Here’s what experts say

TCS share price rose almost 7 per cent on the BSE on Friday, July 12, a day after the company reported its April-June quarter scorecard. TCS shares opened at ₹4,001.15 against its previous close of ₹3,922.70 and rose 7 per cent to the level of ₹4,199. TCS stock ended 6.68 per cent higher at ₹4,184.90 apiece. Equity benchmark Sensex closed 0.78 per cent up at 80,519.34.

TCS Q1 result

TCS on Thursday, July 11, reported an 8.72 per cent YoY rise in its consolidated net profit to ₹12,040 crore for Q1FY25. In the same quarter last year, the company's profit was ₹11,074 crore.

Overall revenue from operations for the quarter stood at ₹62,613 crore, rising 5.4 per cent YoY from ₹59,381 crore in Q1FY24. In constant currency (CC) terms, the company registered a 4.4 per cent YoY growth in revenue.

Operating margin expanded 1.5 per cent YoY to come at 24.7 per cent.

The company also announced an interim dividend of ₹10 per equity share for the financial year 2024-2025. 

TCS Q1 result review

Many experts found TCS's Q1 numbers better than expectations and said the company was well-positioned to grow despite a challenging environment.

Sanjeev Hota, the head of research at Sharekhan by BNP Paribas, pointed out that TCS reported a solid quarter, with strong revenue growth up 2.2 per cent QoQ in CC (constant currency), beating his estimates of 1.5 per cent QoQ growth, while margin declined 130 bps on account of wage hike, which was still better than his estimate and fairly in-line.

"TCS Q1 numbers augur well to improve the sentiments for IT stocks and expect positive rubs off on the overall sector. We have a buy rating on the stock," said Hota.

"With wage hikes behind it, management believes EBIT margin trend to inch up and move towards the aspirational 26-28 per cent band. Order book TCV (total contract value) moderated to $8.3 billion on expected lines after record order TCV in Q4FY24," said Hota.

Hota pointed out that the company's management commentary indicated that the order pipeline continues to stay healthy and that the current moderation in order TCV was in line with the normalised order TCV of $7-9 billion.

Manish Chowdhury, the head of research at StoxBox, underscored that TCS’s Q1FY25 result offered a mild positive surprise as sequential CC (constant currency) revenue growth of 2.2 per cent reflected an improving business environment in the US.

"Large deals made in the last year seem to be getting converted into revenue along with the ramp-up of the BSNL deal. The lowering attrition and the addition of net headcount are major positives and augur well for the company’s utilisation levels and, subsequently, its EBIT margin. Despite wage hikes in the quarter, TCS reported a beat in EBIT margin estimates. These positives are bound to lead to an upward revision in EPS (earnings per share) estimates but not so much on the revenue side," said Chowdhury.

According to Chowdhury, deal wins and deal pipeline, updates on the BSNL deal ramp-up, medium-term industry demand trends, revenue growth and margin outlook for FY25, and investments in GenAI partnerships will be the key monitorable for the stock going forward.

What should investors do?

Most brokerage firms maintained their previous views on the stock after its June quarter earnings. Some see signs of revival emerging, while others believe it is too early to say so.

Brokerage firm Motilal Oswal Financial Services maintained a buy call on the stock with a target price of ₹4,660. This implies 30 times FY26E EPS (earnings per share) and a 20 per cent upside potential.

"Given its size, order book and exposure to long-duration orders and portfolio, TCS is well positioned to withstand the lukewarm macro environment. Owing to its steadfast market leadership position and best-in-class execution, the company has maintained its industry-leading margin and demonstrated superior return ratios," said Motilal Oswal.

Kotak Institutional Equities maintained an add call on the stock with a fair value of ₹4,500.

Kotak underscored that TCS reported a healthy beat in revenue growth, driven by BSNL and other large and mega deal ramp-ups. However, muted TCV (total contract value) and growth in key market segments indicate that things are not rosy yet.

Kotak added that discretionary demand is improving in the US banking segment, but overall demand has not.

"It is interesting to note that the valuations of tier-1 peers have converged toward TCS, despite the more consistent growth and better RoIC (return on invested capital) profile of the latter. It is set to be the industry leader in growth and net profit in FY25 and is well-positioned in the current environment," said Kotak.

Among the global brokerage firms, UBS maintained a buy call on TCS with a target price of ₹4,600, reported CNBC-TV18.

" There were small but many positives in Q1 results. Another quarter of outperformance could lead to a re-rating for the company. The company's GenAI deal pipeline at $1.2 billion versus $900 million (QoQ) is worth watching," CNBC-TV18 reported UBS saying so.

Jefferies upgraded TCS stock to a buy, pegging the target price at ₹4,615 as it sees the company returning to growth, CNBC-TV18 reported. Jefferies underscored the net hiring at a seven-quarter high is a sign of revival.

According to CNBC-TV18, the brokerage firm expects TCS to post a 7 per cent CAGR in constant currency revenue and a 10 per cent CAGR in EPS (earnings per share) over FY24-27.

On the other hand, Nomura has maintained a neutral call on the stock with a target price of ₹3,860, while Citi has maintained a sell call on the stock with a target price of ₹3,645, reported CNBC-TV18.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.