TCS shares: Should you buy, hold or sell stock post Q3 results, dividend?

The third quarter results of Tata Consultancy Services Ltd (TCS) ticked all the boxes. Despite benign expectations, deal wins at $10.2 billion came in higher than Street expectations of $7-9 billion. Analysts noted that the sequential revenue growth in constant currency terms was flat, below Street expectations. But margin expansion of 40 basis points quarter-on-quarter was in line with estimates. The IT firm also announced Rs 76 in interim and special dividends.

TCS valuations stay attractive compared with peers Infosys Ltd and HCL Technologies Ltd, analysts said as they suggested 'Buy' rating on the stock post Q3 results and hefty dividend announcement.

"Deal-wins were super strong at $10.2 billion (up 18.6 per cent QoQ/up 26 per cent YoY), even without any mega deals. The weak TCV over the last two quarters had been a concern– which got partly pacified by this quarter’s number. The management highlighted improved decision-making driven by shorter deal cycles. Its commentary on early signs of revival in discretionary spends leads to a bright outlook," said Nuvama Institutional Equities

TCS noted that the BSNL deal is now 70 per cent complete and likely to conclude in the next two quarters. Its management is looking to offset the revenue impact, even as it expects developed markets to do the heavy lifting in 2025. Overall, the management expects 2025 growth to be higher than CY24, implying high single-digit growth in developed markets.

"We are trimming FY25/26 EPS by 1.8 per cent/ 4.1 per cent mainly on lower other income (higher dividend), as we update FY26/27 dollar rupee assumption to 86.5. We roll forward the valuation to 30 times FY27E PE; retain ‘BUY’ with a target price of Rs 5,200 (earlier Rs 5,100)," Nuvama said.

MOFSL said while the headline revenue numbers were flat, the deal win TCV was encouraging, signaling potential momentum pick-up ahead. While FY24 also saw strong deal closures, FY25 revenue growth is being impacted by a higher proportion of mega cost-saving deals, which likely carried lower annual contract values, coupled with severe ramp-downs in critical client projects, it noted.

"Looking ahead to FY26, a recovery in discretionary client spending and a strong US economy could present a more favorable growth environment. While BSNL ramp-down is still a key risk, we believe improving deal closing cycles and the strong TCV showing in 3Q should offset some of that impact. We are also encouraged by the absence of "mega deals" in 3Q TCV, suggesting a return of short-cycle deals," it said.

Tech spend recovery, which over the past six months was heavily reliant on BFS, is now spreading to other verticals such as Hi-tech and Retail, the brokerage added while suggesting a 'Buy' and a target price of Rs 5,000 on TCS.

Shaji Nair, Research Analyst, Capital Market Strategy at Mirae Asset Sharekhan said TCS' revenue growth declined 1.7 per cent QoQ, missing his modest estimates of 1 per cent decline on reported basis.Margin improved 40 bps QoQ to 24.5 per cent bps, in-line with estimates.

"Deal win TCV at $ 10.2 billion has shown uptick , above company’s normalised TCV of $7-9 billion, which is encouraging. Commentary on early signs of revival in discretionary spend in some verticals is positive and is likely to set a good undertone for CY25. . We have Buy rating on the stock," Nair said.