UBS upgrades TCS to 'buy', says the Tata Group company can deliver industry-leading growth in FY25

TCS share price, UBS upgrades TCS: Shares of Tata Consultancy Services (NSE: TCS) rose as much as 2 per cent in the morning deals on Tuesday (February 27) after UBS upgraded the stock to 'buy' as it believes the Tata group company can deliver industry-leading growth and margins among peers in FY25. 

At around 10:00 a.m., shares of TCS traded 1.74 per cent, or Rs 69.6, higher at Rs 4,070 apiece. The market capitalisation of the company at around the same time stood at Rs 14,72,561.62 crore. 

The global brokerage upgraded TCS' rating to 'buy' from 'neutral' and raised the target price to Rs 4,700 from Rs 4,050 apiece for 12 months.

UBS, in its report, noted various drivers for TCS: 

1) Ramp-up of large deals such as BSNL, NEST, Aviva, and so on.

2) Revival in the BFSI segment.

3) Revival in cloud migration projects.

4) Continued managed services demand strength at the industry level.

Additionally, the gross margin is expected to jump due to a decline in attrition rates. Analysts at UBS expect the gross margin to grow by more than 100 basis points (bps) in the next four to six quarters. 

On the revenue front, India's biggest IT services firm is expected to lead its peers by growing 100–150 bps in FY25. 

"We expect TCS to deliver 8.8 per cent year-on-year (YoY) US$ revenue growth in FY25 (vs 4.7 per cent in FY24), outperforming its peers' 3.6–8.2 per cent expected growth (UBSe)," the brokerage report read.

The report further said that the company can optimally utilise its bench in the coming quarters and can improve its utilisation by another 200 bps. 

Conversely, UBS sees a net negative impact of 20–30 bps in FY25 due to the low-margin BSNL deal.

Analysts expect margins to diverge in the range of -90 bp to 50 bps from the FY26 estimate of 26.3 per cent, with a -3 per cent to 3 per cent change in USD/INR rates. 

TCS Q3 results 

The leading Indian software service provider achieved a 2 per cent year-on-year (YoY) growth in consolidated net profit, reaching Rs 11,058 crore, while revenue experienced a 4 per cent increase, totalling Rs 60,583 crore.

Sequentially, the revenue saw a 1.5 per cent increase, while the profit declined by 2.5 per cent. TCS attributed this profit decline to a one-time charge of Rs 958 crore incurred during the quarter for the settlement of a legal claim.

TCS share price performance 

In a year, TCS shares have gained over 22 per cent against the Nifty50's rise of over 27 per cent. 

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