TCS Q1 Results Review — 'Buy' The Stock Maintains Systematix On Robust Pipeline, Compelling Valuations

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Systematix Research Report

Tata Consultancy Services Ltd. reported revenue decline in Q1, primarily due to the ramp-down in BSNL deal. Barring India, the company posted a disappointing 0.5% QoQ revenue decline. The weakness is attributable to the cautious discretionary spending in international markets.

Clients are taking longer to finalize decisions, with near-term demand staying soft due to macro volatility and a sharper focus on return-driven investments. Management expects a rebound in FY26 growth, banking on

1. visibility from robust H2 FY25 total contract value numbers, despite no new mega deal wins (exceeded guided range of $7-9 billion),

2. signs of reviving discretionary spends in the BFSI and retail verticals,

3. signs of recovery in the US financial services vertical, and

4. positive bias in clients’ CY25 IT budgets.

Management believes the medium-term drivers for technology spend are intact and is upbeat on revenue growth for FY26 versus FY25.

We have revised our USD revenue CAGR estimate for FY25–27E downward from 6.4% to 4.6%, factoring in near-term softness and a cautious demand outlook. EPS estimates for FY26E/FY27E have been trimmed by 1.9%/2.7%, while Ebit margin assumptions remain largely unchanged.

Accordingly, we lower our target price to Rs 3,908 (from Rs 4,017), based on an unchanged 25x FY27E EPS. At 23.6x 1-year forward earnings, TCS trades at a 4% discount to its 10- year average—offering a favorable entry point.

Key risks:

1. Abrupt exit/s from the leadership team,

2. pressure on client discretionary spend sustaining in FY26/FY27,

3. non-encouraging outcomes of cost-saving programs.

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