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In its brokerage note on December 16, Citi maintained its sell call on TCS and set the target price at ₹3,935, implying it sees a potential downside of more than 12% in the tech stock.
As the third quarter of the 2024-25 fiscal nears its close, the brokerage pointed out that TCS’ BSNL Project is expected to be stable or may slightly decline in the December 2024 ended quarter. It is likely to start tapering off post that, it said.
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With TCS usually the one to kick off the Nifty 50 earnings season, Citi said the company’s smaller discretionary deals are emerging but they face return on investment (RoI) scrutiny. Also, the IT behemoth’s mega deals are being divided into smaller contracts. Meanwhile, the UK and Europe have softer demand compared to North America, the brokerage noted.
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Despite the headwinds, TCS aims to achieve an aspirational margin band of 26-28%, Citi highlighted. This compares to a sequentially lower EBIT margin of 24.1% in the preceding September 2024 ended quarter, in which growth was led by energy, resources and utilities along with the manufacturing business.
“We saw the cautious trends of the last few quarters continue to play out in this quarter as well. Amidst an uncertain geopolitical situation, our biggest vertical, BFSI showed signs of recovery,” TCS CEO and MD K Krithivasan had said following the results last quarter.
Meanwhile, in the current quarter, Citi believes the reduced subcontracting costs at TCS is a result of strategic decisions rather than market conditions.
Last week, HSBC had downgraded TCS to hold on the back of weak outlook for Europe and GenAI uncertainty likely restricting upside.
TCS shares traded 0.33% percent lower at ₹4,459 on NSE at 9:15 am.
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