Add Tata Consultancy Services Ltd For Target Rs.3,676 - Yes Securities
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Result Synopsis
Tata Consultancy Services(TCS) reported operating performance that was slightly below estimates. It reported USD revenue growth of 1.7% QoQ, which had around 100bps of cross currency tailwind in the quarter; while INR reported growth was 1.6% QoQ. Therevenue growth was led by strong performance in Retail and CPG vertical(up 22.9% YoY). EBIT margin was flat QoQ at 24.5% as potential margin tailwind on account of falling attrition and improving pyramid got offset by higher onsite cost. LTM attrition was down 120bps QoQ to 20.1%.
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 decisionmaking and are slowing down discretionary IT projects and this would result in lowerrevenue growth in FY24. The operating margin is expected to improve in FY24 by 50- 70bps YoY led by improving employee pyramid and falling employee attrition. We estimate revenue CAGR of 11.0% over FY23?25E with average EBIT margin of 25.2%. We rollover to FY25E estimates and maintain our ADD on the stock with revised target price of Rs 3,676/share at 25x on FY25E EPS. The stock trades at PER of 24.8x/22.1x on FY24E/FY25E EPS.
Result Highlights
* Reported revenue of Rs 591.6bn, up 1.6% QoQ in INR terms (up 1.7% in USD terms). The cc growth was 0.6% QoQ (10.7% YoY).
* The revenue growth was led by robust performance in verticals such as Retail and CPG (up 13.o% YoY), Life Sciences & Healthcare (up 12.3% YoY), Technology and Services (up 9.2% YoY).
* EBIT margin remained flat QoQ at 24.5% (down 4 bps).
* Deal booking was strong as it reported TCV of $10.0bn for the quarter that included a mega deal. (vs $7.8bn in Q3FY23). North America TCV at $5 Bn; BFSI TCV at $3 Bn, Retail TCV at $1.3 Bn.
* Net headcount addition was 821 employees in the quarter and closed at 614,795 employees. LTM attrition decreased by 120 bps QoQ to 20.1%.
* Declared final dividend of Rs 24/ share.
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