TCS Q2 Results Review — 'Buy' TCS Shares Maintains Motilal Oswal On Undemanding Valuations

While TCS' management expects FY26 growth to be better than FY25, the brokerage believes this guidance is somewhat fuzzy. Even assuming a 1% CQGR in H2, Motilal Oswal estimate FY26 international growth at ~2.5% in USD terms. This indicates no incremental growth over FY25.

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Motilal Oswal Report

Tata Consultancy Services Ltd. reported revenue of $7.5 billion in Q2 FY26, up 0.8% QoQ in constant currency terms vs our estimate of 1.0%. Growth was led by the life science and healthcare vertical (up 3.4% QoQ CC). Technology and services/manufacturing/BFSI grew 1.8%/1.6%/1.1% QoQ CC.

TCS will incorporate a wholly-owned subsidiary to build a 1GW capacity AI data center in India (current datacenter capacity in India: 1GW). Ebit margin was 25.2% (up 70 bp QoQ), above our estimate of 24.3%. Adjusted profit after tax rose 1.1% QoQ/8.4% YoY at Rs 130 billion (above our estimate of Rs 126 billion).

For H1 FY26, revenue/Ebit/PAT grew 1.9%/3.8%/3.7% YoY in INR terms compared to H1 FY25. We expect revenue/Ebit/PAT to grow by 5.8%/7.8%/7.5% YoY in H2 FY26.

TCS reported a deal TCV of $10 billion, up 16.3% YoY. The book-to-bill ratio was stable at 1.3x.

While management expects FY26 growth to be better than FY25, we believe this guidance is somewhat fuzzy. Regarding the data center announcement, we await clarity on the capital structure, capex schedule, and other details such as potential rentals and signed MOUs.

At present, we do not model data center investments or related revenue into our forecasts.

Valuations are undemanding, and we reiterate our Buy rating on TCS with a target price of Rs 3,500, implying a 15% potential upside.

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