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IDBI Capital Report
IDBI Capital has maintained its rating to Buy on Tata Consultancy Services Ltd. due to sharp correction in the stock prices in the recent past with a reduced target price of Rs 2,400 valuing at 14.5x FY28E EPS.
TCS reported Q1 FY27 revenue of Rs 72,275 crore, up 2.2% QoQ and 13.9% YoY in rupee terms; in USD terms revenue was $7.6 billion, flat sequentially and up 2.7% YoY (40bps CC QoQ growth). Operating margin came in at 24%, down 130bps QoQ, largely due to the annual wage hike cycle (170bps drag), partly offset by currency benefit and operational efficiencies.
Net margin stood at 19.2%. TCV bookings remained robust at $9.5 billion, including the marquee $800 million AI-led transformation megadeal with SKF, alongside wins with ServiceNow and a large European Fortune 50 clients.
Annualized AI services revenue crossed $2.6 billion, up 13.6% YoY, though incremental quarterly AI revenue moderated to $75 million versus $125 million in Q4, reflecting the non-linear, project-based nature of AI engagements. Vertical trends remained mixed; BFSI stayed resilient, manufacturing and life sciences saw softness but management guided to a recovery in Q2, while consumer/retail-remained weak on geopolitical and discretionary spend pressures.
Workforce grew to 593,798 with strong campus hiring (~14K fresher) signaling confidence in demand normalisation. Management reiterated no major AI-led revenue cannibalisation yet, citing productivity gains of 10-15% typically offset by incremental client opportunities.
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