Target: ₹3,925
CMP: ₹3,496.55
It was previously highlighted in our report that the news surrounding tariffs may not positively impact earnings and decision-making, potentially leading to a decrease in P/E multiples and subsequent earnings downgrades. The Nifty IT Index has shown a 7% underperformance compared to the Nifty Index YTD, with a 1% underperformance since February 2.
Given this scenario, we have revisited and adjusted our earnings estimates for Tata Consultancy Services (TCS) to reflect a possible slowdown in global growth, shifts in clients’ IT spending behaviors due to tariff impacts, and the utilization of artificial intelligence (AI) for productivity gains. Our revised estimates now project a lower FY25F-27F US$ revenue CAGR of 4.5% (previously 7.5%) and a PAT (₹) CAGR of 9.2% (previously 11%).
We retain our target PE/G multiple of 2.6x, resulting in a target P/E of 24x (previously 28x) FY27F EPS. This leads to a revised target price of ₹3,925 (previously ₹4,915). The certainty of operating cash flow, dividend payout ratio, and strong return ratios support the retention of the target PE/G multiple. Risks to our growth assumptions and target price include a slower recovery in the North America (NA) geography and the FSI vertical, weak bookings in 1HCY25F, and increased project cancellations.
Overall, the implications of tariffs on earnings and decision-making continue to present challenges for TCS, and we will continue to monitor the situation closely.
