TCS reports 4% rise in Q3 net profit: Should you buy, hold or sell?

Shares of Tata Consultancy Services (TCS) were focused on Friday (January 10) trading after the IT major reported its Q3 earnings after market hours the previous day. In the October-December period, the Mumbai-headquartered IT bellwether reported a net profit of Rs 12,380 crore, marking an increase of 4 percent sequentially. Revenue for the review quarter came in at Rs 63,973 crore compared to Rs 64,259 crore in the previous three months.

According to a survey by Zee Business, Tata Consultancy Services was expected to register a profit of Rs 12,400 crore and a revenue of Rs 64,380 crore or $ 7,625 million in the December quarter.

Analysts put its revenue in constant currency terms—or revenue without the effect of currency fluctuations—to rise 0.3 percent sequentially.

The IT major reported Rs 15,657 crore in earnings before interest and taxes (EBIT) in the December quarter, while margins came in better than estimates at 24.5 percent compared to 24.1 percent in the previous quarter. Analysts expect the margin to come in at 24.4 percent.

Consumer outlook on TCS after Q3 show

Post the Q3 results of the IT giant, many global retailers are optimistic about the stock. International brokerage CLSA has upgraded the stock to ‘accumulate’ from the previous ‘hold’ call with a price target raised to Rs 4,546 from Rs 4251. The brokerage cites multiple prior growth vectors as the reason for the upgrade. Also, the brokerage noted that the 5-year average valuation looks attractive.

CLSA noted that Q3 was another disappointing quarter for the Tier-I IT major from both growth and margin perspectives. However, the demand outlook is improving significantly with a sharp pickup in the company’s order book.

Meanwhile, Jefferies reiterated its ‘buy’ rating and revised the target price down to Rs 4,760 from 4,775. According to the brokerage, TCS’ Q3 performance was in line with estimates. In addition, management’s comments on the first signs of recovery in discretionary spending are encouraged. The brokerage expects 9% EPS CAGR over FY25-27. Jefferies added that at 27x P/E, the stock’s valuation looks attractive.