- Jefferies cut TCS target price to Rs 1,800 from Rs 2,275 citing AI risks and revenue concerns
- TCS order book flat and headcount down 3% year-on-year, signaling weak growth visibility
- BofA kept neutral rating on TCS with Rs 2,365 target, sees low chance of restructuring before 2028
Jefferies has cut its target price on Tata Consultancy Services sharply to Rs 1,800 from Rs 2,275. This marks the brokerage's third reduction to its target for the stock this year, as it flagged mounting risks from artificial intelligence-led revenue deflation.
The brokerage retained its 'underperform' rating on the stock. The revised target implies a 23% downside from Wednesday's closing price of Rs 2,339.
Jefferies expects TCS to deliver a muted 4% to 5% CAGR in constant currency revenue and EPS over FY26-29, citing higher exposure to application-managed services and business process outsourcing, segments it believes are most vulnerable to AI-led disruption.
The brokerage noted that TCS' order book was flat year-on-year in the June quarter, while headcount declined 3% year-on-year, developments it said do not bode well for revenue growth visibility over FY27 and FY28. Jefferies expects revenue growth of just 3.9% over FY26-29E, with margins also under pressure from rising AI-related investments and pricing pushback from clients.
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Cash flow conversion is another concern flagged in the note. TCS' free cash flow to profit after tax ratio has declined from 117% in FY21 to 84% in FY26, a trend Jefferies expects to persist as the company pivots towards acquisitions and asset-heavy investments such as data centres.
The brokerage said TCS is trading at a premium to global peer Accenture that is not justified by its growth outlook. "TCS is trading at a ~30% premium to Accenture," the note said, adding that this compares with a 10-year average premium of just 1%.
Over the past three years, Jefferies noted, TCS has underperformed the Nifty by more than 55%, a trend it expects to continue given its below-peer earnings growth outlook among the top three Indian IT firms.
The target price is based on 11 times price-to-earnings, applied to Jefferies' estimates for the company.
TCS shares have been among the weaker performers in the IT pack this year, as investors weigh the sector's exposure to AI-driven changes in service delivery models against near-term deal pipelines.
BofA on TCS
Meanwhile, BofA has maintained a 'neutral' rating on TCS with a target price of Rs 2,365, as it assessed the implications of the upcoming change in Tata Sons' chairmanship on the IT major. The brokerage said Chandrasekaran's familiarity with TCS meant he was closely involved in the company's strategic and leadership planning, including its pivot to AI-led services announced last year. He also assisted the company in managing relationships with key customers and business partners, BofA noted.
While Chandrasekaran was involved in strategic oversight at TCS, BofA said it sees organisational restructuring at the company as unlikely before 2028. Risks could emerge in the event of any such restructuring, the brokerage said, but it places a low probability on this over the next 12 months, particularly given that TCS chief executive K Krithivasan's tenure runs until May 2028.
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