Add Tata Consultancy Services Ltd For Target Rs.3,627 - Yes Securities Ltd
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Result Synopsis Tata Consultancy Services(TCS) reported operating performance that was inline with estimates. It reported USD revenue growth of 0.4% QoQ (flat QoQ in cc terms); while INR reported growth was 0.4% QoQ. The revenue growth was led by strong performance in Manufacturing (up 9.4% YoY cc terms) and Life Sciences & Healthcare (up 10.1% YoY cc terms. EBIT margin was down 132 bps QoQ to 23.2% led by impact from wage hike in the quarter. LTM attrition was down 230bps QoQ to 17.8%.
The long term demand story remains intact led by cloud adoption and data analytics across enterprises. However, clients remain cautious and are taking longer time for decision making and are slowing down discretionary IT projects and this continues to impact near term revenue performance. Also, it has started utilizing Generative AI in select use cases for client related projects. The operating margin is expected to improve over next 3 quarters led by improving employee pyramid and falling employee attrition. We estimate revenue CAGR of 10.2% over FY23?25E with average EBIT margin of 25.1%. We maintain our ADD on the stock with revised target price of Rs 3,627/share at 25x on FY25E EPS. The stock trades at PER of 25.3x/22.5x on FY24E/FY25E EPS.
Result Highlights
* Reported revenue of Rs 593.8bn, up 0.4% QoQ in INR terms (up 0.4% in USD terms). The cc growth was 7.0% YoY (flat QoQ).
* The revenue growth was led by robust performance in verticals such as Manufacturing (up 9.4% YoY cc terms), Life Sciences & Healthcare (up 10.1% YoY cc terms), Regional Markets & Others (up 16.9% YoY cc terms).
* EBIT margin dipped 132 bps QoQ to 23.2% due to impact from wage hike in the quarter.
* Deal booking was strong as it reported TCV of $10.2bn for the quarter (vs $10bn in Q4FY23). North America TCV at $5.2 Bn; BFSI TCV at $3 Bn, Retail TCV at $1.2 Bn.
* Net headcount addition was 523 employees in the quarter and closed at 615,318 employees. LTM attrition decreased by 230 bps QoQ to 17.8%.
* Declared dividend of Rs 9/ share; record date 20th July 2023.
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