Buy Tata Consultancy Services; target of Rs 3920: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Consultancy Services

The revenue growth in Q1 was disappointing, missing our estimates materially by ~200bps QoQ, largely attributed to the ramp down in BSNL deal (down 2.8% QoQ CC). The degree of weakness further intensified due to slowdown in international business down 0.5% QoQ CC, attributed to a softness in BFSI (down 0.5% QoQ CC). Despite concluding Q1 on a weaker trajectory, the management was confident of achieving better revenue growth in FY26 vs FY25, for international business. The tariff induced verticals already remained soft, the weakness in Europe BFSI further stalling the international business outlook, evident through weak Q1 deal TCV in BFS. We expect FY26 international growth largely to be flat CC, which translates to an ask-rate of ~0.6% CQGR, while we expect the BSNL add-on will support the growth in Q2/Q3 before it sees further ramp-down in Q4. On the margins, utilization and rationalizing employee pyramid are the major levers, however the low-margin add-on BSNL deal would continue to weigh on FY26 margins. We are adjusting our revenue estimates for the quarterly miss while keeping our margins broadly unchanged.

Outlook

We expect CC revenue to decline by 1.4% in FY26E followed by a growth of 5.3% in FY27E, while we expect margins to be reported at 24.6% and 25.1% in FY26E and FY27E. We assign 25x to FY27EPS that translates a TP of 3,920. Maintain BUY.

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Tata Consultancy - 11072025 - prabhu