Prabhudas Lilladher's research report on Tata Consultancy Services
TCS reported strong beat on revenue growth at 7.2% QoQ in USD terms to $5424 m was way above our & street expectations (3%) (Ple: $5284, Cons: $5,291mn). CC revenue growth is at 4.8% QoQ (PLe: 2.7%, Cons: 2.9%) & +3.2% YoY. Revenue growth was led by broad based recovery across segments (BFSI:6.2% QoQ, Retail: 14.6% QoQ, Manufacturing: 9.4% QoQ, Life Sciences: 9.8 % QoQ CC terms). Accelerated business value realization of their customers’ digital investments resulted in broad-based revenue growth & Demand recovery has now strong legs with sustained demand momentum. Margins were at 8Q high at 26.2% (Ple:25.1%, Cons:24.9%) which led to strong beat in PAT at INR84.3bn (Ple: INR:81bn). Management mentioned that margins can be sustained at this levels as growth will help to drive the margins, although there may be some impact from wage hike/ promotions announced in Q3 but growth is the best margin lever & they are working on various other operational levers also. TCS showed strong hiring trend also increase of 9864 employees QoQ (highest in last 3 quarters) & announced salary hikes from 3Q along with hiring rebounding suggesting improving visibility.
TCV was up 34% QoQ to US$8.6bn & quarter’s deal pipeline has been characterized by a very broad-based pickup in deal signings for relatively mid-and small-sized deals as opposed to very large deals. NA deal win was at US$ 3.2bn, BFSI was at US$ 1.7bn & Retail & CPG was at US$1bn. The strong order book, a very robust deal pipeline, and continued market share gains gives them confidence for the future. We have increased our estimates by 5% for FY22/23 which were led by strong revenue & sustainable margin performance & value TCS on 30X (earlier:27X) Sep-22 target multiple to arrive at a changed TP of INR 3200 (earlier: Rs.2738).