Sharekhan's research report on Tata Consultancy Services
Q3 earnings were better than estimates in a seasonally soft quarter with revenues at $7,281 million, up 1.7% y-o-y in constant currency (cc) beating our estimates of $7,224 million driven by Energy Resources and Utilities, Manufacturing, and Life Sciences & Healthcare verticals. EBIT margins improved ~75 bps q-o-q to 25%, beating estimates by ~50 bps led by operational efficiencies and reduction in sub-contractor expenses partially offset by furloughs and higher third-party expenses. Deal win TCVs were stable and broad-based at $8.1 billion, up ~4% y-o-y. Book to bill ratio stood at 1.1x. Management commentary was stable and hopeful of a recovery in FY25 owing to expectations of sector headwinds bottoming out. Management believes there will be positive momentum in BFSI in the next quarter and are some seeing green shoots in Consumer vertical.
Outlook
We believe TCS is well positioned to grab cost optimisation and transformational opportunities as sector headwinds recede and witness a strong pick-up in growth momentum given its strong domain capabilities , contextual knowledge and strong execution . Hence, we maintain Buy rating on TCS with an unchanged PT of Rs. 4,200. At CMP, the stock trades at 26.4x/23.3x FY25/26E EPS.
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