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TCS Q3 Results Review: Strong Deal Wins, 'Revival' Comments Affirm Analysts' Thumbs Up

TCS CEO, K Krithivasan, expects 2025 to be better than last year as the company sees early signs of 'revival, not recovery' in discretionary spending in some business verticals.

<div class="paragraphs"><p>Jefferies is encouraged by TCS' management comments on early signs of revival in discretionary spends. (Image source: TCS/Instagram)</p></div>
Jefferies is encouraged by TCS' management comments on early signs of revival in discretionary spends. (Image source: TCS/Instagram)

Information technology bellwether, Tata Consultancy Services Ltd.'s third-quarter earnings "ticked all boxes", with the management commentary being the most positive over the last two years, according to analysts.

TCS' net profit rose 4.1% sequentially to Rs 12,444 crore in the quarter ended Dec. 31, 2024, in line with the consensus estimate of Rs 12,537 crore shared by analysts tracked by Bloomberg.

The management commentary showed early signs of revival in discretionary spending leading to a bright outlook, Nuvama Institutional Equities said. The tech giant expects calendar year 2025 growth to be higher than the previous year, implying high single-digit growth in developed markets, it said.

TCS expects the near future to look better as it anticipates discretionary spending — which gives IT companies growth impetus with companies spending on transformation projects — to pick up soon.

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Citi Research expects a gradual and uneven recovery with the early signs of recovery in discretionary spend having been there for three quarters. The forward-looking indicators are weak, it said, adding that 2025 growth is better than the previous year.

Good deal wins is an early sign of discretionary spend pick-up and reduced deal cycles, according to HSBC. "Though, commentary provides some confidence," it said, acknowledging TCS’ leadership in scale, operational efficiency and market positioning in emerging technologies, going into 2025.

"We expect TCS could relatively underperform other large peers on growth, due to its higher exposure to Europe and culmination of the BSNL deal," HSBC said.

Jefferies is encouraged by management comments on early signs of revival in discretionary spends. "Ramp-down of the BSNL deal may provide scope to improve margins."

Commentary on early signs of revival in discretionary spends leads to a bright outlook and strong deal-wins, efforts to offset BSNL revenue impact are positive triggers, Nuvama said.

Chief Executive Officer K Krithivasan, expects 2025 to be better than last year, as TCS sees early signs of "revival, not recovery" in discretionary spending in some business verticals.

Here is what analysts have to say:

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CLSA

  • The brokerage upgraded the stock to 'outperform' from 'hold'.

  • Raised target price to Rs 4,546 per share (from Rs 4,251), implying a 13% upside.

  • Expects further rupee depreciation against the US dollar to support earnings in 2025.

  • Valuation multiple aligns with TCS' past five-year average, currently trading at parity.

UBS

  • Maintained a 'buy' rating with a revised target price of Rs 4,750 apiece (down from Rs 4,850), implying a 17.5% upside.

  • Markets may view developments more positively than negatively.

  • Deal conversion ratio suggests potential stabilisation.

  • Remains bullish despite a weak third quarter.

  • Notes TCS is trading at similar valuations to Infosys Ltd. and HCLTech.

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Nomura

  • The brokerage retained 'neutral' rating, with target of Rs 4,020 versus Rs 4,050 per share earlier, implying a downside of 0.5% from the previous close.

  • Modest miss on estimates with growth visibility for fiscal 2026 hazy.

  • UK led the growth up +4.1%, while North America was weak at -2.3% year-on-year.

  • TCS noted that the decision-making cycle in smaller projects has shortened.

  • Company seeing signs of some improvement in discretionary demand in BFSI and Consumers.

  • Healthcare and Lifesciences vertical remains in a wait and watch mode.

  • Expects fiscal 2025 Ebit margin at 24.6%, flat year-on-year and 25.1% in fiscal 2026.

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Citi

  • Maintained a 'sell' rating with a target price of Rs 3,900 per share (revised from Rs 3,950), implying a 4% downside.

  • Reported flattish constant currency revenue quarter-on-quarter.

  • Expects a gradual and uneven recovery ahead.

  • Notes early signs of recovery in discretionary spending for the past three quarters.

  • Forward-looking indicators remain weak for TCS.

  • Margin levers for most companies are near optimal levels.

  • Anticipates cost pressures in the coming quarters.

  • Revises estimates slightly, modeling ~4% cc revenue growth in fiscal 2026.

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HSBC

  • Maintained a 'hold' rating with a price target of Rs 4,540 per share, implying a 10% upside.

  • Performance has likely bottomed out, according to the brokerage.

  • Noted good deal wins and early signs of discretionary spending recovery, along with reduced deal cycles.

  • Expects margins to improve further.

  • Remained 5-6% below consensus but finds commentary somewhat reassuring.

  • Anticipates underperformance compared to large peers due to higher exposure to Europe.

Nuvama

  • Maintained a 'buy' rating on TCS with a revised target price of Rs 5,200 apiece (up from Rs 5,100), implying a 28.5% upside.

  • Results exceeded expectations despite a benign outlook.

  • Reports strong deal wins even without any mega deals.

  • Early signs of recovery in discretionary spending brighten the outlook.

  • Positive on strong deal wins and efforts to offset the BSNL revenue impact.

  • Revival in developed market growth and discretionary spending offers encouraging signs for the industry.

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Emkay

  • Maintained an 'add' rating on TCS with a target price of Rs 4,500 per share, implying an 11% upside.

  • Reported weaker-than-expected performance.

  • Trims estimates by 1-3% to account for the Q3 miss and higher dividend payout.

  • While the stock lacks near-term triggers, valuations are now favourable.

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