Prabhudas Lilladher has reiterated its BUY recommendation on Tata Consultancy Services with a target price of ₹4,040, citing strong quarterly performance and positive outlook for the IT services giant.

Strong Q3 Revenue Performance

TCS delivered impressive revenue growth in Q3, outperforming analyst expectations across key metrics:

The revenue performance was supported by broad-based growth, with international business contributing positively to the overall momentum.

Sectoral Performance and Growth Drivers

The company's performance showed mixed trends across different business segments. The Banking, Financial Services and Insurance (BFS) sector demonstrated steady growth momentum beyond seasonal furloughs and is expected to return to positive growth trajectory from Q4.

However, certain challenges emerged in specific verticals:

• Weakness observed: Retail and Manufacturing sub-segments
• Strong performance: Essential services and non-Automotive sectors
• Compensation factor: AI revenue growth offsetting legacy offering slowdowns

The management expressed confidence in sustaining international revenue growth, backed by improving visibility in North America and continued momentum in key business pockets.

Financial Projections and Margin Outlook

Prabhudas Lilladher has revised its financial estimates upward, reflecting improved margin expectations:

The brokerage expects compensation revisions to be completed, with residual headcount trimming exercises anticipated in Q4. Given the low revenue base in FY26 and steady international business recovery, the firm projects a 5.4% USD revenue CAGR over FY26-28E.

Investment Rationale

The target price of ₹4,040 is based on a 23x multiple applied to FY28E EPS estimates. The positive outlook is supported by the company's strong AI revenue momentum, international business recovery prospects, and margin improvement expectations. The brokerage maintains its BUY rating, emphasizing the company's ability to navigate current market challenges while capitalizing on emerging technology opportunities.

Tata Consultancy Services shares gained ground following the release of Q3 results that were broadly in line with market expectations. The stock closed 0.86% higher at ₹3,235.70 on Monday, outperforming the benchmark index which rose 0.36%. Despite a 25% correction over the past 12 months, over two-thirds of analysts maintain positive ratings on India's largest IT services company.

Mixed Analyst Reactions to Q3 Performance

The December-quarter results prompted varied responses from analysts, with opinions ranging from bullish to bearish. Equipment and software businesses accounted for nearly half of TCS's Q3 growth, according to analyst observations.

Bullish Analyst Views

Macquarie emerged as the most optimistic, maintaining an "outperform" rating with the highest price target among major brokerages:

Macquarie expects growth acceleration and margin improvement to drive a price-to-earnings re-rating by FY27. Kotak Institutional Equities reiterated its "buy" call, citing TCS's strong positioning as a core partner for clients in cloud, data, and AI technologies. However, Kotak noted that sustained execution, particularly in AI, will be critical for any re-rating.

Cautious and Bearish Perspectives

Several analysts maintained more conservative stances on the stock:

Citi warned that muted growth in TCS's international business could disappoint investors. Nomura argued that significant margin improvement is unlikely in FY27 without stronger growth. HSBC noted that while demand commentary was positive, it did not exceed market expectations.

Analyst Consensus and Price Targets

The overall analyst sentiment remains predominantly positive despite mixed Q3 reactions:

The average 12-month consensus price target stands at ₹3,609.00, implying a downside of 21.9% from Monday's closing price.

Bumper Dividend Exceeds Expectations

TCS announced a substantial dividend payout that significantly surpassed market expectations:

The record date for determining eligible shareholders is January 17, with the dividend payment scheduled for February 3. This announcement represents a significant positive surprise for investors, with the actual payout exceeding analyst estimates by ₹22.81 per share.