TCS Shares Surge 5% After Robust Q3FY25 Performance and Dividend Announcement

Shares of Tata Consultancy Services (TCS) surged by 5%, hitting an intraday high of Rs 4,225 on the National Stock Exchange (NSE) on January 10, 2025, despite an overall weak market. This rally came on the back of strong performance in the December quarter (Q3FY25), where the company recorded a total contract value (TCV) of $10.2 billion, representing an 18.6% quarter-on-quarter (QoQ) and 26% year-on-year (YoY) growth. The TCV for the previous quarters in Q1 and Q2 was $8.3 billion and $8.6 billion, respectively.

Key Highlights from TCS Q3FY25:

• Total Contract Value (TCV): The $10.2 billion figure for Q3FY25 shows a solid increase in contract wins, signaling a potential pick-up in momentum.
• Interim Dividend: TCS declared an interim dividend of Rs 76 per share, which includes a special dividend of Rs 66 per share. This has been well-received by investors.
• Geography Performance: Despite experiencing negative constant-currency growth across key geographies in Q3, the management remains optimistic about better growth in 2025 (CY25) compared to 2024 (CY24).

Sectoral Performance:

• TCS was not the only IT company to benefit from positive sentiment in the market. Shares of LTIMindtree, Tech Mahindra, Wipro, Infosys, Persistent Systems, Coforge, and Mphasis also saw gains, ranging from 1% to 4% on the NSE.
• The Nifty IT index, which was up 2.42% at 09:18 AM, outperformed the Nifty 50 index, which rose by just 0.20%. However, the IT index has dropped by 4.8% in the last month, mirroring the performance of the broader market.

Outlook and Broker Commentary:

• Motilal Oswal Financial Services (MOFSL) expressed optimism in its report on TCS, highlighting that the company’s deal win TCV showed encouraging signs, despite flat headline revenue in Q3.
• The brokerage also noted the absence of “mega deals” in Q3, indicating a shift towards short-cycle deals, which could be a positive signal for future growth.
• Looking ahead to FY26, recovery in discretionary client spending and a strong US economy are expected to provide a more favorable growth environment.
• A potential risk remains with the BSNL ramp-down, but MOFSL believes that improving deal cycles and the strong TCV figures should help offset this impact.

Guidance and Market Expectations:

• TCS’s management has maintained its guidance for 26-28% margins and plans to exit FY25 with a margin of 26%, according to a note from ICICI Securities. The key focus will be on how the company can maintain growth in its core markets, especially considering the potential absence of BSNL revenue in H2FY26.

TCS’s positive Q3 performance and optimistic future outlook have helped boost investor sentiment, while the broader IT sector is benefitting from increased tech spend recovery across multiple verticals.