TCS Q2 Results Review - Weak Discretionary Dented The Spirit But FY26 Growth Intact: IDBI Capital

IDBI Capital Report

Despite global concerns, Tata Consultancy Services Ltd.'s Q2 FY25 revenue was up by 5.5% constant currency YoY, led by traction in banking/insurance which was partially offset by some client specific issues in capital market/life science/ healthcare across regions (USA/UK).

Among the non-BFSI segment, energy and utilities (+7.0%YoY) and manufacturing (+5.3% YoY) remained strong in Q2.

Management firmly believes that fed rate cut may have a positive impact on BFSI/TTH segment in the near term and the cost optimization, vendor consolidation and transformational deals to drive momentum in the near term.

Company believes that client’s specific challenges are one quarter phenomena (coupled with Q3 seasonally weak quarter) and will start performing from Q4.

Deal pipeline remains all time high including qualified/overall pipeline and management is comfortable with $7-9 billion/quarter run rate.

At present, most of the IT companies have pushed their limit through high utilization level, as a result hiring becomes an important parameter to understand the depth of deal wins/revenue visibility.

Consistently adding man power and showing confidence to achieve the overall hiring target for the full year indicates a stable revenue visibility which might get impacted by the extended furlough coupled with macro concerns and may lead to a moderate growth of H2.

We assume coverage on the stock with a Hold rating with a target price of Rs 4,389.

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