Tata Consultancy Services - Q4FY22 Result Update - Charging ahead - BUY

Quick Pointers:

- Record high TCV ($11.3 Bn, 49% QoQ, +23% YoY) and headcount addition (~35K, 21% YoY) reinforces strength in demand.

- Read through for peers: strong demand environment and hiring to continue, margins to remain under pressure and quarterly annualized attrition flattening.

TCS reported largely in-line revenues and margin in Q4. The strength in demand is reinforced by - 1) record high broad-based TCV ($11.3 Bn, 49% QoQ, +23% YoY) comprising of two large deals (7-10-year duration), 2) management commentary that deal TCV will continue trending upwards at ~$8+ bn (vs $6-7 Bn pre-covid) and 3) record headcount addition of ~35K, 6%QoQ, +21% YoY. Margins are expected to remain under pressure in the near term due to high manpower costs and return of travel and facility costs. We expect supply pressures to ease in H2FY23, as quarterly attrition cools off. Tech budgets remain priority despite high inflationary environment and we expect impact of inflation to be seen on tech spending with a lag in FY24.

We remain structurally positive on TCS given its - 1) strong growth momentum on a high base, 2) best in class supply side metrics with industry leading margin profile and 3) strong client mining abilities further enhanced by client centric new org structure. We cut our EPS estimates by ~1.5%/0.8% for FY23/24 led by cut in margin estimates. We arrive at a DCF based TP of INR 4,221 (earlier TP of Rs. 4360; implied earnings target multiple of 31x on FY24 EPS). TCS is currently trading at 31x/27x on FY23/24 EPS of 119.6/136.6 with revenue/EPS CAGR of 12.5%/16.2% over FY22-24E.

Shares of Tata Consultancy Services Limited was last trading in BSE at Rs. 3691.45 as compared to the previous close of Rs. 3696.40. The total number of shares traded during the day was 283042 in over 28512 trades.

The stock hit an intraday high of Rs. 3738.60 and intraday low of 3650.05. The net turnover during the day was Rs. 1049338386.00.

Source : Equity Bulls

Keywords

TataConsultancyServices INE467B01029 TCS Q4FY22 ResultUpdate PrabhudasLilladher