CLSA has rated Tata Consultancy Services ‘Outperform’ with a 12-month target price of Rs 3,593, implying a 33.7% upside from current levels. CLSA said its positive view is driven by continued SaaS implementation demand, strong growth guidance from ServiceNow, and support from a nearly 6% free cash flow yield.
The brokerage has also built in an Rs 35 dividend in the fourth quarter and pointed to the possibility of a share buyback following favourable tax changes.
CLSA on TCS: ‘Business-as-usual for SIs’
CLSA titled its report Business-as-usual for SIs and said, “Narratives aside, SaaS implementation remains key growth driver.” The brokerage stated that Tata Consultancy has partnered with ServiceNow “to accelerate large-scale AI adoption for enterprises,” building on a decade-old partnership.
CLSA noted that ServiceNow grew 20.5% year-on-year in constant currency in FY25 and has guided for 19.5%-20% year-on-year growth in FY26. According to the brokerage, this guidance is backed by a strong order book, “implying similar growth for SIs around SaaS implementation having strong partnerships with these platforms.”
The report added that ServiceNow has partnered with foundation model companies like Anthropic and OpenAI, which “improves the customer experience on the platform.”
Explaining the scope of the tie-up, CLSA said, “The TCS-ServiceNow partnership is a multi-year partnership to accelerate AI adoption across business functions.” It added that the partnership will build “industry-specific AI solutions which transform manual, fragmented processes into intelligent, autonomous workflows which learn and improve on their own.”
CLSA on TCS: 10% CAGR in system and service management software
Citing IDC, CLSA said, “According to market intelligence firm IDC, the global market for System and Service Management software is projected to grow at a compound annual growth rate (CAGR) of 10% between 2024 and 2029.”
The brokerage pointed out that system and service management software formed 4% of overall software spending in 2024. It added that the segment is expected to grow at a similar rate to overall software spending.
CLSA also stated, “System and service management software market could expand at a 10% CAGR between 2024-2029 according to International Data Corporation.” This growth outlook supports its constructive stance on companies with strong platform partnerships.
Describing ServiceNow’s capabilities, CLSA wrote, “ServiceNow is a cloud-based platform that provides enterprise automation solutions to streamline and manage various business processes.” It said the platform offers IT service management, IT operations management, human resources, customer service management and security operations.
CLSA on TCS: Certification trends and rankings
In its comparison of large-cap IT firms, CLSA said Tata Consultancy has 2,230 total ServiceNow certifications and total certifications per employee of 0.38%. It assigned Tata Consultancy a ServiceNow ranking of 9 and cited a customer satisfaction score of 4.16 out of 5.
The brokerage observed a moderation in certification growth across the industry. It stated, “Number of ServiceNow certifications has reduced for most companies.” It further added that there has been “a corresponding decrease in certifications as a percentage of total employee base.”
CLSA classified Tata Consultancy as Elite in several partner categories including service provider and consulting and implementation. The comparison includes firms such as Infosys, HCL Tech, Wipro, LTIMindtree, Tech Mahindra, Accenture, Cognizant and Capgemini.
CLSA on Tata Consultancy: Financials, valuation and risks
CLSA has valued Tata Consultancy using two methods together. It has given more importance to the price-to-earnings method, with 75% weight, and the remaining 25% weight to the discounted cash flow method to arrive at its target price.
For its discounted cash flow calculation, CLSA has assumed that the company will grow at 5% in the long term and has used a cost of capital of 11.4%. For the PE-based valuation, it has applied a multiple of 23 times earnings for the period from 4QFY27 to 3QFY28, which it says is close to the company’s 10-year average.
According to CLSA’s estimates, TCS’ revenue is expected to increase to around Rs 2.65 lakh crore in FY26 from about Rs 2.55 lakh crore in FY25 . Earnings per share are estimated at Rs 135.4 in FY26, which means 0.9% growth over the previous year. Growth is then expected to improve to 11.8% in FY27.
However, CLSA listed some key downside risks –
1) Lower-than-expected deal wins that could drive revenue growth below our estimates;
2) Pricing pressure and heightened competitive intensity leading to lower margins;
3) Rupee appreciation Vs US dollar in FY26/FY27;
4) Market share losses to global and Indian peers due to a lack of mega deal wins if discretionary demand does not pick up meaningfully; and
5) Adverse macro situation in the US on the back of uncertainty around policies, tariffs, inflation and bond yields.”
Conclusion
The brokerage’s analysis is based on continued SaaS implementation demand, growth in system and service management software, positioning within the ServiceNow ecosystem, and a blended valuation framework, while it has also detailed risks related to deal wins, margins, currency movements and the US macro environment.