Add TCS, Reduce Tata Elxsi Shares Maintains HDFC Securities Post Q1 Results — Here's Why 

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HDFC Securities Institutional Equities

TCS - Deal wins continue; recovery expected

Tata Consultancy Services Ltd.’s revenue miss (-3.3% QoQ CC) was attributed to BSNL ramp-down while the international market’s revenue decline of 0.5% QoQ CC was as per expectations. The operating margin expanded 30 bps QoQ despite the revenue decline due to the ramp-down of lower-margin BSNL deal.

Amidst delays in decision making and lower discretionary investments due to global uncertainties and clients seeking immediate ROI, TCS clocked TCV of $9.4 billion, primarily fueled by cost optimization projects rather than large transformation programs.

The company remains optimistic that international revenue for FY26E will be better than FY25 and expects pent-up demand for technology transitions once market clarity emerges.

Key positives include-

1. strong TCV, driven by large deal wins across various markets and industries,

2. continued BFS spending,

3. better growth outlook, supported by increase in AI for business engagements, and

4. continued fresher addition.

We expect international revenue to deliver growth of ~4% in FY26E. Our target price of Rs 4,020 is based on 25x June27E EPS (10 years average of 24x).

Tata Elxsi - Margin under pressure; growth rebound likely

Tata Elxsi Ltd. reported its second consecutive quarterly revenue decline, with Q1 FY26 revenue down 3.9% QoQ in CC terms. This was primarily driven by a significant slowdown in the Media and Communication and Healthcare segments.

Margin pressures persisted due to the revenue contraction; however, management expects Ebitda margins to rebound with growth. Tata Elxsi anticipates FY26 growth to be fueled by the Transportation and Media and Communication verticals. The Transportation segment, which contributes around 50% of total revenue, is showing signs of stabilization, particularly with its largest client, JLR.

Continued strong demand for ADAS, SDV, infotainment systems, and electrification is expected to support growth beyond Q2 FY26 in Transportation.

Recent large deal wins (Mercedes-Benz, a European OEM, and Suzuki) have bolstered confidence in a revenue rebound in Q2 FY26E. However, global macroeconomic uncertainties remain a key risk. Ebit margins are likely to stay under pressure due to two main factors:

1. lower utilization and

2. pricing challenges arising from vendor consolidation deals.

We downgrade our earnings estimated 8-11% for FY26/27E due to pressure on revenue and gross margins. We maintain a Reduce rating on Tata Elxsi, with a target price of Rs 5,075, based on a valuation of 32 times FY27E EPS.

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