Motilal Oswal's research report on TCS
TCS reported revenue of USD7.2b (-0.2% QoQ) in 2QFY24, up 0.1% QoQ in constant currency (CC) and below our estimate of 1.1% CC QoQ. Revenue growth was affected by continued slowdown across key verticals (BFSI/Retail) and geographies (US/Europe). The weakness in revenue growth was majorly led by continued slowdown in discretionary spends and clients reprioritizing cost optimization projects. However, the deal momentum remained strong as TCS recorded the second-highest ever deal TCV of USD11.2b in 2Q, with a book-to-bill ratio of 1.6x. 2Q EBIT margin improved by 110bp to 24.3% due to the recalibration of gross hiring, which led to a sharp drop in headcount by ~6.3k, coupled with incremental measures to rationalize the pyramid and optimize subcon expenses in 2Q. The management has suggested that it has further scope for improvement in utilization and productivity as freshers are deployed and repurposed into projects.
Outlook
We have trimmed our FY24/FY25 EPS estimates by 0.7%/1.8%. Our TP of INR4,060 implies 28x FY25E EPS (12% upside). Reiterate BUY on the stock.
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