IGI Logo

Revenue in-line with expectations: TCS Q1FY24 revenue was in-line with our expectations. Rupee revenue came in at Rs 59,381cr, up by 0.4% QoQ and 12.6% YoY and revenue in USD was 7,226mn, up by 0.4% QoQ and 6.6% YoY. While growth in constant currency was flat QoQ and grew by 7% YoY. Amongst geographies, In terms of CC, the growth was mainly driven by the UK with 16.1% growth YoY followed by India, Latin America and Middle East with 14%, 13.5% and 15.2%, respectively. Amongst verticals, growth was led by Life Sciences and Healthcare which grew 10.1% followed by the Manufacturing vertical with 9.4% growth. Besides, other sectors like BFSI, Retail & Consumer and Technology and Media grew in single digit of 3%, 5.3%, 4.4 and 0.5%, respectively.

EBIT margin impacted due to wage hike: EBIT for Q1FY24 came in at Rs 13,755cr which de-grew by 5.1% QOQ and grew by 12.9% YoY. EBIT margin was down by 132bps QoQ and marginally up by 7bps YoY. The company aim was to maintain margins in the range of 24-25% but due to annual salary increase from April there was ~200bps impact of this hike which was offset through improved efficiencies. In the medium term, management expects to reach 24-25% margin while in the long run they aspire to reach margins of 26-28% but no immediate timeline given for the same.

Attrition cooled off further lower: This is the third consecutive quarter wherein TCS attrition moderated and reached to 17.8%, down by 230bps QoQ and 190bps YoY. For Q1FY23 and Q4FY23 attrition was at 19.7% and 20.1%, respectively

Healthy flow of deals continues: In Q1FY24, strong deals momentum continued for TCS and it won orders worth USD 10.2bn, which was higher by 2% QoQ and 24.4% YoY. Deals for Q1FY23 and Q4FY23 were at USD 8.2bn and USD 10bn, respectively.

Management outlook: 1) Client are prioritizing spends and their approach is more towards short term deals as it is generating better return at the time of uncertainty and prevailing macro challenges. 2) Further, the management believes from a long term perspective deal momentum and demand will continue for cost optimization and vendor consolidation along with newer technologies. 3) There are a lot of clients who are interested in Artificial Intelligence as well as cyber security and the company is continuously investing and building solutions for the clients. 4) TCS corporate R&D group has already filed 710 patents for AI innovations in the past five years, of which 282 has already been granted

Outlook & Valuation: TCS posted in-line numbers for Q1FY24 with strong deals momentum and easing attrition. Further, Management was a bit cautious for the near term demand because of the prevailing macro uncertainty however in the longer term clients spending is expected to pick up pace while demand for cloud, transformation, AI and cyber would be healthy. Additionally, TCS would continue to maintain its leadership position, innovate products in newer technologies as per the demand and focus on managing cost and operating margins. On the financial front, we have estimated its revenue/EBIT to grow at 16.0/18.2% CAGR over FY23-25E and have maintained a Buy rating with a target price of Rs 3,882.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.religareonline.com/disclaimer

SEBI Registration number is INZ000174330

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer