Dolat Capital Market's research report on Tata Consultancy Services
TCS reported revenue growth of 4.8% QoQ in CC terms (DART estm: 3.1%) led by broad-based growth across verticals (BFSI up 6.2%, Retail up 8.8% and Life science 6.9%) and OPM decline of 45bps to 23.2%. Adj OPM (for legal claim of Rs12.1bn) stood at 26.2% (DE 25.3%) led by continued cost control and positive operating leverage. Announced dividend of Rs.12 and Buyback of Rs.160bn at Rs 3,000/share. Signed TCV of US$8.6bn implying 1.41x revenue coverage on TTM basis. Adjusted for Phoenix Deal, TCV is in-line at US$6.1Bn. We believe delayed ramp-up issues are largely ironed out and thus should see better conversion. Pipeline stays healthy across regions/verticals/sizes. TCS’s “qualitatively” highlighted that industry is at a cusp to witness a multi-year transformation led by renewed urgency by client towards cloud adoption. Q2FY21 growth was led by market share gains (flight to quality) and increased client spending (Accelerated Tech adoption).
Outlook
Strong beat on results, confident stance on transformation, resolution of delayed ramp-up of its rich order book - TTM TCV of $30.4Bn that resulted in recovery of planned timelines; provides comfort for sustained momentum in near-to-medium term. We upgrade our revenue estimates by 1.7%/2.4% in FY21 and FY22, and assign an Accumulate rating and TP of Rs2,950 valued at 28xFY23E EPS (2x PEG).
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