Hold Tata Consultancy Services; target of Rs 2750: ICICI Direct

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26 Aug, 2025 12:21

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ICICI Direct's research report on Tata Consultancy Services

US$ revenues grew 1% QoQ to $4,787 million, marginally below our 1.5% QoQ growth and $4,811.4 million estimate. Constant currency revenues grew 1.3% QoQ led by volume growth (1.6% QoQ) Rupee revenues grew 1.2% QoQ to Rs 30,904 crore, below our estimate of 1.9% growth to Rs 31,135 crore At 25.2%, EBIT margins expanded 10 bps QoQ and were in line with our 25.2% estimate mainly on account of lower SG&A (16.7% as a percentage of revenues vs. our estimate of 17.1%) PAT of Rs 6,531 crore was ahead of our Rs 6,359 crore estimate led by higher other income (Rs 864 crore vs. our estimate of Rs 522.2 crore). TCS proposed a dividend of Rs 7 per share.

Outlook
TCS reported Q3 earnings, largely in line with our expectations. From a portfolio perspective, the retail vertical has started showing signs of a revival while digital is keeping pace with an annual run rate of ~$4 billion in FY18E. However, BFSI is yet to see any recovery. With limited levers available for margin expansion, we would be watchful on the margin front. We roll our estimates to FY20E and expect rupee revenue, PAT to grow at a CAGR of 9.5%, 10.3% in FY18-20E. We maintain our HOLD rating on the stock with a revised target price of Rs 2750.
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