On Friday, Investec (LON:INVP) analyst Nitin Padmanabhan adjusted the price target for Tata Consultancy Services Ltd. (NS:TCS:IN) to INR3,690 from INR3,652, while reiterating a Sell rating on the stock. The revision follows TCS's reported earnings, which fell short of revenue expectations by 0.5% in constant currency (CC) and 1.5% in U.S. dollar terms.
Padmanabhan noted that international markets, contributing 90% of TCS's revenue, have been stagnant when looking at the trailing twelve months (TTM). The company's growth has been predominantly fueled by its operations in India, most notably the Bharat Sanchar Nigam Limited (BSNL) deal. Management has indicated that the BSNL deal, worth over $1 billion, will start to diminish in value by the fourth quarter of the fiscal year 2025 (Q4FY25).
The analysis suggests that if current assumptions hold, TCS could see a significant reduction in revenue from the BSNL deal by the second quarter of fiscal year 2026 (Q2FY26), potentially resulting in a 2-3% quarterly revenue headwind for the first half of that fiscal year. Despite this, TCS has pointed out that it is exploring other opportunities that may offset the expected decline in BSNL-related revenue.
TCS's recent deal wins amounting to $10.2 billion, with a book-to-bill ratio of 1.3x, were acknowledged as a positive sign, even though no mega deals were included. However, the analyst expressed skepticism about the company's ability to meet revenue estimates, suggesting that the task may be challenging.
The commentary from Investec concludes with a reaffirmation of the Sell rating and the updated target price, highlighting that the firm does not foresee any significant changes to its estimates for TCS.
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