TCS shares jump over 3% after Q1 results. What are Morgan Stanley, Citi and other brokerages saying?

Shares of Tata Consultancy Services (TCS) rose 3.5% to Rs 2,118 on Friday after the company reported a 5% year-on-year (YoY) increase in consolidated net profit to Rs 13,349 crore for the first quarter, compared with Rs 12,760 crore in the year-ago period.

Revenue from operations rose 14% YoY to Rs 72,275 crore. On a sequential basis, revenue grew 2.2% in rupee terms and 0.4% in constant currency. Operating margin stood at 24%, while net margin came in at 19.2%. Net cash from operations was Rs 12,412 crore, equivalent to 93% of net income.

TCS share price: Buy, sell or hold after Q1 results?

Morgan Stanley has maintained its Equal Weight rating on TCS with an unchanged target price of Rs 2,200, implying an upside of about 7%.


The brokerage said TCS' Q1FY27 performance was in line to slightly ahead of expectations, while management's commentary for the second quarter was modestly positive. The company reported 0.4% QoQ constant-currency revenue growth, while EBIT margin contracted 130 basis points to 24% due to wage hikes. Total contract value (TCV) stood at $9.5 billion, including an $800 million AI megadeal with SKF.

Morgan Stanley noted that AI services revenue has reached an annualised run rate of $2.6 billion, or about 8% of total revenue, with client engagements moving from proof-of-concept projects to scaled deployments. However, discretionary spending and project deferrals continue to be weighed down by geopolitical uncertainty and inflation.

While management is targeting an exit EBIT margin of over 25% in FY27 through pyramid optimisation and productivity gains, Morgan Stanley expects full-year margins to remain below that level and sees limited scope for a re-rating until there are clearer signs of a sustained recovery in revenue growth.

Also read: TCS' next growth phase hinges on AI investments, not just deal momentum

Citi has maintained its Sell rating on TCS and cut its target price to Rs 1,825 from Rs 1,965, implying a downside of about 11% from the current market price. The brokerage cited weak growth prospects and subdued international revenue momentum. It noted that TCS reported Q1 revenue of $7.62 billion, with 0.4% sequential and 3.2% year-on-year constant-currency growth, while operating margin contracted 130 basis points to 24% due to wage hikes. Citi expects revenue growth to remain muted amid cautious client spending, AI-led disruption, intensifying competition and the rising influence of global capability centres (GCCs).

Nuvama
Nuvama has maintained its Buy rating on TCS with a target price of Rs 3,000, implying an upside of about 46%. While growth remains elusive, the brokerage believes the company continues to deliver on margins and deal wins. Following a 36% correction year-to-date, the stock is trading at an attractive 13x FY27E P/E, below its historical -1 standard deviation multiple, while offering a dividend yield of around 5%. Nuvama expects growth to recover over the next few quarters as TCS regains momentum lost due to the Gulf conflict and as the macro environment and GenAI-related spending gradually improve.

Motilal Oswal Financial Services (MOFSL)
MOFSL has maintained its Buy rating on TCS with a target price of Rs 2,350, implying an upside of around 15%. The brokerage said, "While management expects demand to improve in 2Q, we believe growth will continue to come from select pockets rather than a broad-based pickup. Q1FY27 commentary, however, is better than we expected. We have lowered our FY27 margin estimate by 30 basis points to reflect continued investments in AI capabilities, partnerships and sales."

Emkay
Emkay has reiterated its Add rating on TCS with a target price of Rs 2,600, implying an upside of nearly 27%. While describing the first-quarter performance as soft, the brokerage expects growth to improve, driven by a recovery in the Life Sciences and Manufacturing verticals, along with continued strength in Technology Services and BFSI. Emkay believes valuations remain attractive but is awaiting stronger revenue growth before turning more constructive on the stock.

360 One
360 One has maintained its Hold rating on TCS with an unchanged target price of Rs 2,290, implying an upside of around 12%. While the stock is trading at relatively inexpensive valuations of 13.1x FY27E EPS and 12.5x FY28E EPS, the brokerage believes the scope for a near-term re-rating is limited. It expects AI-led disruption, pricing pressures and a subdued macro environment to continue weighing on growth prospects and investor sentiment.

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Dolat Capital has upgraded TCS to Buy with a target price of Rs 2,580, implying an upside of around 26%. The brokerage expects a gradual demand recovery, backed by technology backlogs and improving trends across key verticals. While TCV remained modest, margins stayed resilient. It said the recent correction has made valuations attractive, valuing the stock at 16x FY28E earnings.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)