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Strong deal momentum, outlook intact

Tata Consultancy Services (TCS), a subsidiary of Tata Sons Ltd, is a global information technology company providing a range of services to the banking, financial services and insurance (BFSI); telecommunications; transportation; retail; manufacturing; pharma and utility industries.

• Q4FY24 consolidated revenue grew 3.5% YoY (up 2.2% YoY on constant currency, or CC, basis), aided by strong growth in the regional markets and manufacturing segment, moderated by a slight dip in the BFSI and consumer segments.

• Order book grew 32.0% YoY to $13.2bn. TCS declared final dividend of Rs. 28, taking the total dividend payout to Rs. 73 per share for FY24.

• Revenue growth may remain subdued in the near term. However, the company’s robust order book, strategic partnerships and widening margins auger well for its future performance. Hence, we remain optimistic and maintain our BUY rating on the stock, with a revised target price of Rs. 4,344 based on 27x FY26E adj. EPS.

Margin expansion on lower subcontractor cost, better productivity

TCS posted a muted 3.5% YoY growth in consolidated revenue in Q4FY24 to Rs. 61,237cr (up 2.2% YoY CC), as the clients re-prioritised deals with immediate and maximum ROI amid uncertain macro-economy and geopolitical volatilities. Among verticals, growth was led by the regional markets (up 26.0% YoY CC), manufacturing (up 9.7% YoY CC) and energy, resources, and utilities (up 7.3% YoY CC). Life sciences and healthcare grew 1.7% YoY CC. Revenue from the BFSI and consumer segments, the major contributors to total revenue, decreased 3.2% and 0.3% YoY, respectively. Regionally, growth was majorly attributable to the UK (up 6.2% YoY CC), Asia-Pacific (5.2% YoY CC) and Indian markets (37.9% YoY CC). North America witnessed 2.3% YoY decline in revenue in CC basis, while Continental Europe shrank 2.0% YoY CC. EBITDA rose 8.8% YoY to Rs 17,164cr, while EBITDA margin expanded 130bps YoY to 28.0%, on lower subcontractor costs, better productivity and utilisation. Subsequently, PAT grew 9.3% YoY to Rs. 12,502cr and PAT margin 110bps YoY to 20.4%

Highest ever deal wins at $13.2bn

Total contract value (TCV) bookings stood at $13.2bn (up 32.0% YoY). The TCV of deal wins in North America was $5.7bn. BFSI TCV stood at $4.1bn and that of the consumer business was $1.6bn. Key deal wins included strategic partnerships with a global architecture, engineering and consultancy company, a prominent provider of digital businesses and consumer information services, a leading European airline and a leading UK-based financial group.

Key concall highlights

• Two clients were added in the $100mn+ band, six in the $50mn+ band, 10 in the $20mn+ band and 53 in the $1mn+ band.

• LTM attrition rate stood at 12.5% (down 80bps QoQ). Net headcount addition fell 1,759 during the quarter; total headcount stood at 601,546.

Valuation

TCS reported resilient performance despite uncertain macro-economic conditions, evident in its broad-based deal wins across industry verticals and geography and better operating leverage. Revenue growth may remain subdued in the near term as clients still prioritise projects with immediate ROI. However, the company’s dominant market position, superior execution capabilities, robust order book and sustained focus on cost optimisation auger well for its future performance. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 4,344 using a target multiple of 27x P/E on FY26E adj. EPS.

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