Shares of Tata Consultancy Services (TCS) rose 3 per cent to the day’s high of Rs 4,038 in early trading on the NSE as India’s largest IT services company reported an 8.7 per cent year-on-year (YoY) increase in consolidated net profit, reaching Rs 12,040 crore for the first quarter ending June 30, 2024.
TCS Q1FY25 Update
IT bellwether Tata Consultancy Services (TCS) reported a 9 per cent year-on-year growth in its net profit for the June quarter, reaching Rs 12,040 crore. This is an increase from the Rs 11,120 crore profit reported in the same quarter of the previous financial year. The consolidated profit for the period stood slightly higher at Rs 12,105 crore.
The company’s revenue from operations rose to Rs 62,613 crore, marking a 5.4 per cent increase over the Rs 59,381 crore posted in the corresponding period last year. Despite the annual growth, the profit after tax (PAT) was down by over 3 per cent sequentially, compared to the Rs 12,502 crore reported in Q4FY24.
TCS achieved a consolidated operating margin of 24.7 per cent for the reported quarter, reflecting a 1.5 per cent year-on-year expansion. The net margin stood at 19.2 per cent. Notably, the profit exceeded the Street estimate of Rs 11,900 crore.
The company’s board has also recommended a dividend of Rs 10 per share.
What Should Investors Do?
Jefferies upgraded TCS stock to ‘buy’ with a target price of Rs 4,615, Jefferies highlighted a return to growth in key verticals and markets, while Citi and Nuvama noted growth in certain segments, albeit with some caution about sustainability.
UBS maintained its ‘buy’ rating on TCS while raising the target price to Rs 4,600 per share. The brokerage noted that a strong earnings beat in the fiscal first quarter indicates a potential recovery.
Jefferies and UBS target prices imply an upside of at least 18 per cent over the previous closing price.
Brokerage firm Nomura took a ‘neutral’ stance on TCS shares, slightly raising its target price for it to Rs 3,860 per share from Rs 3,800. Despite the positive Q1 results, Nomura prefers Infosys and Wipro as top picks in the large-cap Indian IT services space.
Nuvama reiterated its ‘Buy’ call on TCS, raising the target price to Rs 4,800 per share from Rs 4,560. The brokerage views Q1 results as a solid start to what it terms a turnaround year.
Despite the positive Q1 results, Jefferies and Citi pointed out that the current valuations might offer limited upside. Citi has maintained a ‘Sell’ rating on TCS, with a target price of Rs 3,645 per share, citing management’s cautious commentary and the belief that it’s too early to declare sustained growth.
In the past six months, TCS stock has gained 0.5 per cent, underperforming the Nifty 50 which gained over 11 per cent during the same period.
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