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Published on 13/10/2021 4:02:57 PM | Source: Geojit Financial Services Ltd

Large Cap : Buy Tata Consultancy Services Ltd For Target Rs.4,298 - Geojit Financial

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TCS delivers strong performance in Q2FY22

Tata Consultancy Services, a division of Tata Sons Limited, is a global IT services organization that provides a comprehensive range of IT services to its clients in diverse industries. The Company, caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing, pharmaceutical, and utility industries.

* Q2FY22 revenue rose 16.8% YoY (+3.2% QoQ, +15.5% YoY on constant currency (CC) basis), led by double digit growth across all divisions.

* EBITDA margin contracted 70bps to 28.0% owing to high cost of sales and operating costs. Adj. PATsurged 10.7% YoY on higher other income.

* Company plans to hire over 40,000 freshers during FY22, anticipating strong demand in coming quarters.

* Strong TCV, new deals acquisition, robust growth across segments will continue to drive performance in coming quarters, for which the hiring cycle has also picked up pace. We reiterate our BUY rating on the stock with a revised target price of Rs. 4,298 based on 36x FY23E adj. EPS.

 

Revenue surges on the back of strong growth across verticals

During Q2FY22, revenue grew 16.8% YoY to Rs. 46,867cr (+3.2% QoQ, +15.5% YoY on CC basis) due to increase in volume and demand across all segments. BFSI revenue increased 14.3% YoY to Rs. 18,445cr (+1.6% QoQ), supported by strong revenue from its products with loan crossing USD 2bn mark. Retail and Consumer Packed Food (CPG) up by 17.8% YoY to Rs. 7,483cr (+4.4% QoQ) with strong order book. Life Sciences and Healthcare segment grew by 19.7% YoY to Rs. 4,978cr (+1.6% QoQ) supported by new deals.

Also, manufacturing business saw robust growth of 18.6% YoY to Rs. 4,538cr (+3.2% QoQ) due to increased bookings and new deal wins. Besides this, Communications and Media, and Technology Services rose 17.9% YoY to Rs. 7,733cr (+4.3% QoQ). EBIT grew 14.1% to Rs. 12,000cr, but EBIT margin contracted ~60bps due to high operating costs and D&A. Adj. PAT rose 10.7% YoY to Rs. 9,624cr, further helped by higher other income (+21.6% YoY), partly offset by higher taxes (+30.9%).

 

Key concall highlights

* In Q2FY22, Company’s TCV stood at USD 7.6bn, with the strong set of deal wins across all the geographies. Additionally, TCS added 19,690 employees count in Q2FY22, taking total to 528,748. Also, attrition rate (LTM) in IT services was at lowest in the industry at 11.9%.

* Management proposed interim dividend of Rs.7 in Q2FY22.

 

New product addition aids growth momentum

TCS product portfolio continued to perform well in Q2FY22. Ignio signed up 22 new customers out of which 8 went live. In the financial services domain, TCS BaNCS added five new wins and three went live during the quarter.

Company’s Quartz blockchain platform had new wins out of which one went live, and the company also won its first customer from the pharma industry. Overall, during Q2FY22 the company added 17 new clients in USD 50mn band, 19 clients in USD 20mn plus band, 31 clients in USD 10mn plus band, 44 in USD 5mn plus band and 62 clients in USD 1mn plus band.

 

Valuation

Company’s long-term outlook remains promising on the back of strong order book, new deal wins and strong execution capabilities. Strong growth momentum in core business verticals is likely to continue with strong order booking in BFSI, Retail, and CPG. We reiterate our BUY rating on the stock with a revised target price of Rs. 4,298 based on 36x FY23E adj. EPS.

 

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