TCS shares jump 5% post Q3; should you buy, hold, or sell IT heavyweight?

Shares of Tata Consultancy Services (TCS), the country’s most valued IT stock, rallied nearly 5% in early trade on Friday as investors cheered “upbeat” management commentary. Brokerages remain bullish on the stock, citing healthy order book, revival in discretionary spending, particularly in BFSI and consumer, amid reduction in interest rates, easing of inflation, and reduced political uncertainties. This, along with management's efforts to offset the BSNL revenue impact acted as positive triggers for TCS.

Reacting to Q3 numbers, TCS shares gained as much as 4.7% to hit a high of ₹4,227.70 in the first hour of trade on the BSE. Early today, the country’s second most valued stock opened 4% higher at
4200, after ending 1.71% lower at ₹4,036.65 in the previous session.

TCS shares have delivered 13% return to its shareholders in the last one year, while it gained over 7% in the past six months, while it corrected nearly 5% in a month. The Tata group stock touched its 52-week high of ₹4,585.90 on September 2, 2024, and a 52-week low of ₹3,593.30 on June 4, 2024.

TCS, in a post-market hour release, reported net profit of ₹12,380 crore in the December quarter of FY25 as compared to ₹11,058 crore in the year-ago period and ₹11,909 crore a quarter earlier. The total income rose 6.13% to ₹65,216 crore in Q3 FY25, from ₹61,445 crore in the same period last year and was marginally higher than the preceding September quarter's ₹64,988 crore. 

The board of the company announced interim dividend of ₹10 per share and special dividend of ₹66 per share of ₹1 each.

During the quarter under review, TCS’ total contract values (TCVs) stood at $10.2 billion, up 18.6% QoQ and 26% YoY, aided by growth across industries, despite no mega deals.

Analysts view on TCS shares post Q3

Domestic brokerage house Nuvama has retained ‘BUY’ call on the IT major with an upgraded target price of ₹5,200 per share. The agency, in its report, said the management commentary was most positive over last two years, as it guided to higher growth in CY25 than CY24, citing early signs of revival in discretionary spends.

“We view the strong deal-wins and management's efforts to offset the BSNL revenue impact as positive triggers for TCS. The revival in developed market growth and discretionary spends marks incrementally positive signs for the industry. All along, TCS’s valuations remain attractive versus peers (Infosys, HCL),” it says in a note.

Emkay Securities has retained ‘ADD’ with a price target of ₹4,500, citing strong order book, early signs of recovery in discretionary spending, and healthy dividend payout. The brokerage in a note says TCS’ management expects improvement in discretionary spends in CY25, led by reduced interest rates, easing inflation, and change in administration in the United States, which is its largest market.

On the BSNL deal, which is completed 70% so far, Emkay expects the contract to taper from Q4 FY25. “The management is confident of offsetting this impact from other clients. This will also aid margin improvement, as third-party expenses reduce,” it says.

JM Financial has upgraded TCS to ‘BUY’ from ‘Hold’, with a revised target price of ₹4,680, from ₹4,230 earlier, saying that it currently trades at a marginal discount to peers – Infosys and HCL Tech - versus historical premium of 15-30%.

The agency says that TCS reported strong deal wins of $10.2bn in Q3, taking its last 12-month deal TCV to $40 billion. “While 3Q growth was soft due to seasonal factors, the management exuded confidence on better growth ahead. Managed indicated that CY25 will be stronger than CY24. This is particularly impressive given that BSNL deal ($1bn in base) is known to conclude in CY25,” it says in a note.

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