TCS Impresses with Record Wins: Analysts Bullish on Double-Digit Growth

Despite all of the positives from the March quarter, TCS' management looked to be holding back on calling for a growth recovery, according to UBS. Given the unclear macroeconomic, the brokerage appears to be concerned about the danger of transaction deferments and slippages.

Tata Consultancy Services (TCS) shares climbed on April 15 as the business exceeded market expectations with a profit in the quarter ending March 2024. The business announced its largest EBIT margin in three years, as well as a record $13.2 billion in transaction wins, which analysts say would give near-term revenue clarity.

Moving forward, the organization will profit from both short-term cost-cutting efforts and medium-term digital transformation contracts. They expect to record double-digit earnings growth in fiscal year 25.

Should you Buy TCS?

JPMorgan describes TCS as a "cross-cycle champion" who will gain from cost-cutting transactions in the short term and discretionary digital transformation initiatives in the medium run. The multinational brokerage upgraded the IT major's shares to 'overweight' and increased its price objective to Rs 4,500 from Rs 4,000 before.

With unprecedented deal wins, JPMorgan analysts predict TCS to outperform all significant IT services peers in FY25. TCS' $900 million generative AI pipeline, which is double that of the prior period, seems promising, according to the report.

Converting contract victories into income takes time:

According to Goldman Sachs, TCS' quarterly performance increases the likelihood that the business will record double-digit profits growth in FY25.

Brokerage maintained its 'buy' recommendation on TCS with a price objective of Rs 4,350 and a revenue growth prediction of 8% for FY25, up from 3.4% the previous year.

Despite all of the positives from the March quarter, TCS management looked to be holding back on forecasting a growth resurgence, according to UBS. Brokerage said that management appears to be concerned about the danger of contract deferments and slippages in the face of uncertain macroeconomic conditions.

"Nonetheless, the conversion of deal wins into revenue is a matter of time," UBS said, assigning the counter a 'buy' rating and a target price of Rs 4,700 per share. It expects TCS to outperform its peers in terms of sales growth and profits in FY25.

To Summarize

TCS's portfolio of turnkey services offerings, traction in emerging markets, ability to roll up, improving sales and marketing prowess, and willingness to take multiple big bets (different go-to-market models) are among the key drivers that should help the company sustain its high-growth trajectory in the long run, according to Nuvama, which maintained a 'buy' rating on the stock with a target price of ₹ 4,560 per share