Will Tata Consultancy Hit ₹5000? Should I Buy Now?

India’s information technology (IT) sector, long considered a pillar of the country’s economic growth, has seen significant headwinds over the past two years. The industry, which comprises software services, business process outsourcing, and hardware manufacturing, has seen significant declines following years of strong performance.

However, with the recovery in IT services, the industry seems well positioned to resume its growth path. One of the leading companies in this category is industry giant Tata Consultancy Services (TCS).

Industry Outlook

The Indian IT sector is navigating a difficult time, marked by global economic uncertainty, talent shortages, and margin pressure. Despite recent underperformance, the industry is showing signs of recovery. Companies are adapting to new technologies such as AI, cloud computing, and automation, while also coping with changing customer demands and spending patterns.

The BFSI crisis and changing technology trends have forced IT companies to evolve their strategies. However, increasing digital adoption across industries offers new growth opportunities. While the sector may not return to its previous high growth rates immediately, there is cautious optimism about a gradual recovery. Success will depend on effectively managing ongoing challenges while leveraging new technologies and market demands.

TCS Company Overview

Tata Consulting Services(TCS) India’s largest IT services provider is a global leader in its field and operates in 55 countries. TCS offers a wide range of services such as application development, business process outsourcing, and consulting. The company has strong financial results, consistent revenue growth, and industry-leading profit margins.

TCS is known for its highly skilled workforce, commitment to innovation in areas such as artificial intelligence and cloud computing, and long-standing relationships with many Fortune 500 customers. TCS also keeps up with changing market trends and new technologies.

Human Resource Management

As of Q1 FY2025, TCS has a total of 606,998 employees. The company maintains a diverse workforce with employees from 151 countries, 35.5% of whom are women. In the IT services sector, TCS reports a low turnover rate of 12.1% (LTM). The organization focuses on talent development, and as of FY2025, employees have accumulated 11 million learning hours.

During the same period, TCS employees acquired 1.2 million competencies and 129,000 in-demand competencies. These figures demonstrate TCS’s commitment to retaining a knowledgeable and diverse workforce while successfully controlling turnover.

TCS Financial Highlights

Revenue has been growing steadily, rising 5.4% from ₹59,381 Crores in June 2023 to ₹62,613 Crores in June 2024. Net profit has also increased, improving 9% from ₹11,120 Crores to ₹12,105 Crores during the same period.

Operating profit margin remained relatively stable, fluctuating between 25% and 28% over the five quarters, ending at 27% in June 2024. Operating profit showed steady growth, rising 12.3% from Rs 13,755 crore to Rs 15,442 crore.

Earnings per share also showed growth, rising from Rs 30.26 in June 2023 to Rs 33.28 in June 2024, up 10% over a year.

Key indicators of TCS

Results Outlook and Management Commentary

On July 11, Tata Consultancy Services (TCS) announced its June quarter results, which met market expectations. The technology company reported consolidated net profit of ₹12,105 crore, up 9% year-on-year. Between April and June, India’s largest IT company’s operating income rose 5.4% year-on-year to ₹62,613 crore. The company also issued an interim dividend of ₹10 per share.

According to a filing with the stock exchange, TCS observed that all major markets have resumed sequential growth. The company also reported that almost all verticals have experienced sequential growth, with manufacturing leading the way with a 9.4% annual growth rate, followed by energy, resources and utilities at 5.7% and life sciences and healthcare at 4.0%. Emerging markets in particular have shown robust double-digit growth, approaching 62% year-on-year.

Total contract value

Over the past five quarters, TCS has experienced significant fluctuations in its total contract value (TCV). In Q1 2024, TCS set a high benchmark by reporting a strong TCV of $34.1 billion (highest ever deal volume). However, there has been a significant decline in the subsequent quarters. In Q2 2024, it recorded $11.2 billion, a 67.2% decrease from Q1.

The downward trend continued in Q3 2024, recording $8.1 billion, down 27.7% from Q2. It showed signs of recovery in Q4 2024, recording $13.2 billion, up 63% from Q3. In the most recent quarter, Q1 2025, it recorded $8.3 billion, down 37.1% from Q4 2024 and a massive 75.7% drop from the same quarter last year. This volatility in TCV reflects the challenging and dynamic market conditions that TCS has been navigating.

Also read…

TCS’s Future Prospects

1. Digital Transformation: As enterprises around the world accelerate their digital initiatives in the wake of the pandemic, TCS is well positioned to capitalize on this trend. The company can leverage its expertise to help customers modernize their operations and enhance their digital capabilities.
2. Cloud Migration: As more companies move to cloud-based solutions, TCS has a significant opportunity to grow its cloud services, including supporting cloud migration, management, and optimization across multiple platforms.
3. AI and Automation: TCS’s continued investment in AI and automation technologies will be critical. These areas are becoming increasingly important to our customers and provide opportunities for TCS to develop innovative solutions and maintain a competitive edge.
4. Talent Management: Bridging the IT skills gap and reducing attrition is critical for TCS. The company must focus on retraining and upskilling its employees to meet changing customer requirements and maintain project continuity.
5. World economic factors: TCS is navigating a range of global economic challenges, including geopolitical tensions and potential downturns in key markets. The Company’s ability to adapt to these uncertainties will impact its performance and growth.
6. Customer Expectations: There is a shift towards more value-driven and performance-driven engagement. TCS is changing its service model and delivery approach to meet these changing customer expectations and maintain strong relationships.
7. Cost Management: In a competitive market with margin pressure, TCS focuses on effective cost management, which includes optimizing operations, improving efficiency, investing in new technologies and balancing profitability.

Can TCS cross ₹5,000?

International brokerage Macquarie has reaffirmed its ‘Outperform’ rating on Tata Consultancy Services (TCS), India’s largest brokerage, and given its highest price target to D-Street. IT Services The company praised its investment in AI and its use cases, saying they were impressive.

Macquarie also added TCS to its Marquee Ideas list and raised its price target to Rs 5,740 from Rs 4,522.55 earlier. The report highlights TCS’s significant R&D investments of over $300 million annually and the development of an AI-based legacy modernization framework.

Macquarie believes that AI can improve the quality of software engineering and enable legacy modernization at higher accuracy and lower cost, potentially opening up a large market for such modernization. This positive outlook has led Macquarie to maintain its earnings estimates for TCS, and it expects medium-term demand to increase from the wave of legacy modernization programs.

conclusion

Despite the challenges across the industry, TCS demonstrates resilience and commitment to growth. The above-average performance in Q1FY25 with improved net income and revenue demonstrates the company’s ability to navigate market uncertainties. TCS’s focus on digital transformation, cloud services, artificial intelligence and automation positions it well for future opportunities.

However, the organization must continue to address talent management issues and adapt to changing customer demands. Some analysts are positive about TCS’s future, while others are more concerned. Overall, TCS’s future prospects appear cautiously optimistic, based on its ability to appropriately leverage emerging technologies and manage global economic variables.

Written by Dipangsh Kundu

The Trade Brains portal’s stock screener, stock heatmap, portfolio backtesting, and stock comparison tools give investors comprehensive tools to identify the best stocks, receive stock market news, and make informed investments.

---

Start your stock market journey today!

Want to learn how to trade and invest in the stock market? Check out FinGrad’s exclusive stock market courses, a learning initiative from Trade Brains. Get ahead in your trading career by registering for free courses and webinars from FinGrad today. Join now!!