BofA reiterates TCS stock rating, highlights known headwinds in Q3 performance

EditorAhmed Abdulazez Abdulkadir
Published 01/10/2025, 04:10 AM
TCS
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On Friday, BofA Securities maintained a Neutral rating on Tata Consultancy Services Ltd. (NS:TCS:IN) with a price target of INR4,200.00. The assessment followed TCS's reported third-quarter revenue growth, which was below both BofA's and the consensus forecasts.

TCS's quarter-over-quarter revenue growth was a modest 0.1%, while the year-over-year growth, adjusted for currency changes, stood at 4.5%. This performance fell short of the anticipated 0.5% sequential growth.

The revenue from services, excluding equipment, witnessed a 0.5% decline from the previous quarter. This drop was attributed to seasonal decreases in several key industries, including financial services, manufacturing, healthcare, and communications.

TCS management indicated that the growth trajectory met the start-of-quarter expectations, suggesting that the company was aware of the headwinds and that there was no unexpected weakening in demand.

Moreover, the company observed a maturation in demand for Artificial Intelligence (AI) services, which has not yet affected pricing. On a positive note, TCS's EBIT margin saw a 40 basis point increase quarter-over-quarter. This improvement was in line with expectations and was attributed to operating leverage and enhanced productivity on a like-for-like basis.

The analyst from BofA Securities highlighted these financial outcomes, noting that the quarter's growth was in sync with the initial expectations set by the company, indicating foreseen challenges rather than new, emerging issues. Despite the subdued growth in service revenues, the company's ability to expand its EBIT margin points to effective management of operational efficiencies.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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