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Growth momentum sustained in Q1FY22

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

* In Q1FY22, Topline grew 18.5% YoY (+16.4% YoY on constant currency basis) aided by BFSI (+18.8% YoY; ~40% of total revenue) and Life Sciences, Retail & Consumer, Manufacturing and Media and Communication segments.

* EBITDA margin expanded ~180bps YoY due to new deal wins, better efficiency and utilization. As a result, Adj PAT rose 28.5% YoY.

* Robust pipeline, strong order book and new deals wins are the key highlights. Additionally, operational efficiency and better DSO cycle should support company’s outlook further. Therefore, we reiterate our BUY rating on the stock with a revised target price of Rs. 3,650 based on 31x FY23E adj. EPS.

Improved performance across all the verticals

Revenue rose 18.5% YoY to Rs. 45,411cr (+16.4% YoY on CC basis) backed by robust demand and supply. BFSI revenue rose by 18.8% YoY to Rs. 18,151cr led by business transformation initiatives and core transformation. Life sciences grew by 25.2% YoY to Rs. 4,899cr, supported by digital transformation and customer experiences. Retail and Consumer Packed Food (CPG) up by 21.3% YoY to Rs. 7,171cr due to strong deal wins. Manufacturing segment grew 13.3% YoY to Rs. 4,399cr on growing demand in supply chain services. Additionally, Communications and Media, and Technology Services rose 14.1% YoY to Rs. 7,412cr. EBIT rose 28.1% YoY to Rs. 11,588cr, as EBIT margin expanded 191bps YoY to 25.5% aided by favorable operating leverage, better utilization and large deal wins. Resultantly, net profit surged 28.5% YoY to Rs. 9,008c

Strong growth momentum aided by new wins in segments

In Q1FY22, TCS product portfolio continued to be robust, as Ignio signed up 17 new customers out of which 8 went live. In Financial services, the company had five new wins and five went live and signed largest SaaS deal for TCS BaNCS with one of the largest financial groups in Finland. In Block chain, it had two new wins and have been selected by one of largest commodity exchange to build commodity derivatives platform using BaNCS. In Life sciences, one deal went live and developed TCS ADD safety platforms for US. It won one new deal in Communication Service.

Key concall highlights

* In Q1FY22, the company’s order book stood at USD 8.1bn with the largest deal of USD 400mn. Additionally, TCS also added higher ever employees count 20,409 in Q1FY22, taking total to 509,058.

* In Q1FY22 the company added 2 clients in USD 100mn, 5 clients in USD 50mn, 11 clients in USD 20mn band, 23 in USD 10mn, 22 clients in USD 5mn and 52 clients in USD 1mn band.

* Management proposed interim dividend of Rs. 7 in Q1FY22.

Valuation

Strong order book along with execution capabilities and upward traction across the geography should support topline growth. Additionally, improved operating leverage and healthy balance sheet should provide further growth visibility in upcoming quarter. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 3,650 based on 31x FY23E adj. EPS

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