Tata Consultancy Services (TCS), India’s biggest and most reputable IT services firm, has been a consistent front-runner in the global technology scene for years. Renowned for its reliability to post robust financial performance and groundbreaking solutions, TCS has won the confidence of millions of investors over the decades. But recent events regarding its Q4 FY25 results and the postponement of employee wage increases have put the performance and future of the stock into question. This blog will dissect these recent events and examine if TCS stock is still a good buy today.
A Closer Look at TCS Stock Performance
Over the last year, TCS has seen some volatility, and its share performance has been a subject of debate among investors and analysts. Though it has a good track record, the company has seen significant falls in the last few months:
- 1-Month Decline: TCS shares have fallen by 10%.
- 3-Month Decline: The stock has declined by 20%.
- 6-Month Decline: A decline of 24%.
- 1-Year Decline: TCS stock has declined by 18%.
In spite of this, TCS shares have recorded a major five-year rally with a 84% surge, which is in line with the company’s healthy performance over the longer term. But with all these recent losses and the holdup in salary increases, what should investors look at the stock today?
Key Highlights from TCS Q4 FY25 Results
TCS declared its Q4 FY25 and entire financial year FY25 results on Thursday, January 11, 2025. The result was declared during a holiday closure of the Indian stock market, creating more buzz over the announcement of the results.
1. Revenue and Profit Performance:
- Net Profit: TCS had a net profit of ₹12,224 crore in the March quarter, a 1.3% decrease from ₹12,380 crore in the last quarter.
- Revenue: TCS’s Q4 FY25 revenue increased by 0.8% to ₹64,479 crore from ₹63,973 crore in the last quarter. The revenue in USD terms fell by 1% to $7,465 million.
- EBIT (Earnings Before Interest and Tax): EBIT for the quarter fell 0.6% to ₹15,601 crore, with the EBIT margin falling to 24.2% from 24.5% in the last quarter.
These numbers were marginally below market expectations, and analysts expected better growth. The performance signaled a slowdown with margins under strain, which sent some investors worried.
2. Macro Uncertainties and Salary Hike Delays
TCS further declared that in light of the increasing macroeconomic uncertainties, the company would postpone salary increases for its employees, which were planned for April 2025. This move is due to continuing issues like the US-China tariff war and the changing economic environment in different markets across the globe. TCS declared that the salary increases would be introduced later in the fiscal year, subject to market clarity and outlook.
3. Declaration of Dividend:
In spite of the difficulties, TCS declared a final dividend of ₹30 per share for the year 2025. This was viewed as a welcome step by investors, reflecting the company’s determination to reward its shareholders, even in difficult business times.
4. Analyzing the Market Reaction
Following the announcement of Q4 FY25 results, TCS’s share price came under pressure. Shares fell 1.44% on Wednesday, closing at ₹3,246.10 per unit on the Bombay Stock Exchange (BSE). This fall was further exacerbated by the news of the delay in wage hike and the subdued earnings growth.
Still, market sentiment was already half-and-half with analysts pronouncing on TCS’s performance and growth prospects in the future. Though the company is still well-placed in most segments, especially digital services, worries regarding short-term growth and margins are bound to bear down on its immediate-term prospects.
Is TCS a Stock to Buy Today?
1. Positive Long-Term Outlook:
TCS’s fundamental strength and leadership in the IT services sector stand unchallenged. TCS’s long-term growth would continue to be driven by the strategic investments being made in areas such as AI, cloud, digital, and cybersecurity. All the short-term volatility notwithstanding, TCS remains a leader in the global IT landscape with an impressive order book and a wide customer base.
As per Emkay Global Financial Services, TCS has the potential to gain from its investments in AI and digital strengths. Nevertheless, the analysts further add that macroeconomic uncertainties like weaker global growth and higher tariffs could bring about delays in client decision-making and discretionary consumption, which would impact topline growth in the near term.
2. Valuation and Investment Considerations:
TCS shares have a P/E ratio of approximately 26, which represents a premium valuation, but this is commensurate with its leadership in the market and stable profitability. Investors seeking long-term stability might still be able to find value in TCS, even with the short-term difficulties.
According to Choice Broking’s analysis, the CAGR of the stock’s Revenue, EBIT, and PAT is projected to be 7.2%, 10.7%, and 10.8% respectively in the next two years (FY25-FY27E). It is slower compared to the historical past but nonetheless reflects good performance in the long to medium term.
Choice Broking had a ‘Buy’ recommendation on the stock, but with a lower target price of ₹3,950, representing a PE multiple of 24x on FY27E EPS of 164.6.
3. Short-Term Challenges and Headwinds:
Though TCS is well-positioned for the long term, there are a few short-term challenges to be overcome. The delay in wage hikes has raised issues of employee morale and operating efficiency. Furthermore, the international macroeconomic situation and the rise in scrutiny over discretionary spending by customers have caused deal signings to slow down and decision-making to be postponed.
Also, TCS has experienced some compression in margins, which may affect earnings growth over the short term. Yet, the firm’s entrenched market position and diversified business provide it with the strength to ride out these disturbances.
4. Technological Innovations and Growth Areas:
TCS’s emphasis on building its cloud services, AI-enabled offerings, and cybersecurity solutions is a high-growth area in new technologies. These segments are expected to be a major contributor to its revenue and profitability in the long run, especially as demand for digital transformation services increases globally at an accelerating pace.
Additionally, TCS’s entry into newer sectors such as healthcare and blockchain may further diversify its revenue streams and provide new growth paths. The fact that it has also been focusing on sustainability and green technology is something that aligns with long-term international trends and could further boost its value proposition to investors.
Conclusion: Should You Buy TCS Stock Today?
TCS is a sound investment for the long term, especially for investors seeking stability, predictable growth, and access to the robust IT services industry. Although the short-term trend is under pressure owing to external macroeconomic conditions and the delay in wage hike, the company’s long-term growth opportunities and dominance in digital technologies are a robust foundation for success in the future.
Considering the slower-than-expected growth in Q4 FY25 and the uncertainties in global markets, it might be wise for short-term traders to wait before purchasing until the direction of the market is clearer. For long-term investors, though, TCS is still a good bet, particularly if the stock drops to more favorable valuations in the months ahead.
Investors would do well to monitor macroeconomic factors, trends in client decision-making, and future events on digital services and AI that would enhance TCS’s growth. In spite of the recent downfall, the robust fundamentals and market leadership of the company make it a stock that can be watched for the long-term portfolio.
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