Result Analysis Tata Consultancy Services

Tata Consultancy Services is the largest IT Company in India and the global leader in IT services, consulting and business solutions with an extensive global network. The company offers a consulting-led, cognitive powered, integrated portfolio of business, technology and engineering services and solutions. It provides services to industries such as BFSI, manufacturing, telecommunications, retail and transportation. The company serves to the world’s biggest conglomerates like Google, Amazon, Apple, IBM, Bosch, Adobe etc.

Result Analysis: Tata Consultancy Services Ltd.(CMP: Rs.3610)

Result Update: Q2FY24

 

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Outlook:

TCS reported mixed earnings in Q2FY24 majorly due to the prevailing slowdown across key geographies.i.e.US/Europe. Due to the challenging macro environment clients remain cautious. However, strong order book and exposure to long duration orders suggests better earnings going forward. Company’s margin is going to improve further in the coming quarters owing to company’s focus on the improvement in the utilization and productivity along with muted hiring. TCS has maintained its market leadership position and demonstrated best-in-class execution, which have allowed it to maintain its industry-leading margin and exhibit exceptional return ratios and we remain positive on the stock with the longer term perspective.

Results:

Highlights from Management Commentary:

• The macro environment remains weak similar to 1QFY24, leading to a broad based slowdown. There is heightened caution among clients in North America and continental Europe, while momentum in UK remains strong.

• Retail continues to face difficulties since several sub-verticals are slowing down, including essential expenditure. In the US, household savings are still low.

• The deal pipeline remains strong despite strong deal wins. TCS expects deal wins to remain strong. During the quarter, TCS won two mega deals of USD1b each from BSNL and JLR. TCS is system integrator for the BSNL deal. Though the current deal amounts to USD1b, post-implementation maintenance work could lead to incremental business. A significant portion of this deal is expected to get billed over the next 12-18 months.

• The management has suggested that improvements in utilization and productivity, along with the rationalization of discretionary and sub-contractor expenses, remain margin levers for 2HFY24.

• The reduction in headcount in 2QFY24 was on account of the recalibration of gross additions, as TCS realizes benefits from investments in fresher hiring over the last few quarters. TCS expects hiring to remain muted in the coming quarters.

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