How Did TCS Fare In Q1 FY27?
For the June quarter, TCS reported constant currency revenue growth of 0.4% on a sequential basis, which is at the higher end of the broad range of expectations which were for a negative 0.1% to positive 0.4% growth.
The company’s margins fell 130 basis points, on expected lines, as a CNBC-TV18 poll had projected a 120 basis points drop due to wage hikes.
Among the few companies that report classified AI revenue, TCS reported a 13.6% sequential revenue growth in this segment to $2.6 billion. AI now contributes to 8.5% of its overall topline.
An exceptional loss of ₹668 crore due to settlement of legal claims dragged TCS’ profitability down to ₹13,349 crore during the quarter. Adjusted for that figure, the number is higher than the CNBC-TV18 poll expectation of ₹13,718 crore.
Should You Buy Or Sell TCS?
JPMorgan has maintained its “overweight” recommendation on TCS with a price target of ₹2,400. It said the numbers met their recently downgraded expectations courtesy of a strong performance by the company’s India business.
While the management is hopeful of a better second half, the brokerage is only expecting a revenue growth acceleration to 1% in constant currency terms on a sequential basis from the second quarter.
“Thanks to a solid FY26 exit, ask for hitting 2.5% to 3% year-on-year constant currency growth is not high for TCS and we see a scenario where it matches peers Infosys and HCLTech on a low base,” JPMorgan said, adding at 12.4 times one-year forward earnings, and with growth picking up, they find value in the stock.
Brokerage firm Motilal Oswal has maintained its “buy” recommendation on TCS with a price target of ₹2,350, which indicates an upside potential of 15% from current levels.
It said in its note that although the short-term commentary from the management is better than what they anticipated, long-term uncertainties still remain.
“While we also expect the second quarter to be better, we believe that evidence around demand improvement is scant,” the Motilal Oswal note said.
The TCS management also acknowledged that 10% to 15% of AI-led productivity pass through as projects come up for renewal, although it said that incremental client work as so far offset most of the revenue impact.
“We believe the full impact of AI deflation is still unfolding and productivity gains are likely to continue getting passed on to clients in the coming quarters,” Motilal Oswal said, adding that this will keep the pressure on the existing book of business.
Motilal Oswal is working with 2.5% and 3.2% organic constant currency growth for TCS for financial year 2027 and 2028 respectively. And therefore, on these assumptions, it sees limited downside to the stock for now.
Morgan Stanley though, remains “equal-weight” rating on the stock with a price target of ₹2,200, stating that a better-than-feared outlook for the second quarter should help allay some concerns.
It added that EBIT margins for the company could potentially have downside risks and therefore, re-rating prospects are limited in the absence of any signs of a pick-up in revenue growth.
Shares of TCS had recovered from the lows of the day to end higher on Thursday ahead of the earnings announcement. The US-listed ADRs of its peers, Infosys gained 2% overnight, while those of Wipro ended 1% higher.
(This story will be updated with more analyst recommendations.)
