Jefferies has sharply reduced its target price on Tata Consultancy Services to ₹1,800 from ₹2,275, marking the brokerage's third reduction to the stock this year. According to reports from Essential Business Intelligence, this latest cut represents a 23% downside from Wednesday's closing price of ₹2,339. The brokerage retained its 'underperform' rating on the stock, citing mounting risks from artificial intelligence-led revenue deflation. This caution comes as market analysts raise broader concerns about AI spending across the technology sector.
Jefferies expects TCS to deliver a muted 4% to 5% CAGR in constant currency revenue and EPS over FY26-29, as reported by Essential Business Intelligence. The brokerage noted that TCS order book was flat year-on-year in the June quarter, while headcount declined 3% year-on-year. These developments do not bode well for revenue growth visibility over FY27 and FY28, with Jefferies expecting revenue growth of just 3.9% over FY26-29E. The company's exposure to application-managed services and business process outsourcing segments, which are most vulnerable to AI-led disruption, is a key concern.
According to Essential Business Intelligence, cash flow conversion remains a significant concern for TCS. The company's free cash flow to profit after tax ratio has declined from 117% in FY21 to 84% in FY26, a trend Jefferies expects to persist as the company pivots towards acquisitions and asset-heavy investments such as data centres. Margins are also under pressure from rising AI-related investments and pricing pushback from clients.
As reported by Essential Business Intelligence, TCS is trading at a premium to global peer Accenture that is not justified by its growth outlook. The note states that TCS is trading at a ~30% premium to Accenture, compared with a 10-year average premium of just 1%. Over the past three years, Jefferies noted that TCS has underperformed the Nifty by more than 55%, a trend it expects to continue given its below-peer earnings growth outlook among the top three Indian IT firms.
According to Essential Business Intelligence, TCS shares have been among the weaker performers in the IT pack this year, as investors weigh the sector's exposure to AI-driven changes in service delivery models against near-term deal pipelines. The target price is based on 11 times price-to-earnings, applied to Jefferies' estimates for the company. This performance reflects broader market concerns about AI spending sustainability across the technology sector.
