|Result Analysis: Tata Consultancy Services Ltd.(CMP: Rs.3260.20)||Result Update: Q1FY24|
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.
|Market Cap. (Cr.)||1192924|
|52 Wk. high/low||3575 / 2926|
|Book Value (Rs)||247.01|
|Sector||IT – Software|
- TCS reported marginal increase of 0.4% in the revenues on sequential basis to Rs.59,381 cr. while Net profits decrease of 2.8% QoQ to Rs.11,120 cr. in the first quarter of FY24.
- The earnings were in-lined with the broader street expectations; soft earnings growth was mainly due to the slowdown in discretionary spending projects mainly in North America.
- EBIT of the company declined by 5.1% QoQ due to the wage hike; this resulted in an EBIT margin of 23.2%, which is down from 24.5% in the previous quarter.
- Among segments, Manufacturing and Retail showed better performance with growth of 1.5% and 1.1% QoQ. Life Sciences and healthcare showed muted growth of 0.9% QoQ while BFSI i.e. the major contributor in the revenue showed subdued growth of 0.2% QoQ.
- On the yearly basis, TCS’s growth in the U.K. was significantly higher than in its traditional strongholds of North America and Europe. The U.K. saw a growth rate of 16.1%, while North America and Europe saw growth rates of 4.6% and 3.4%, respectively. Even emerging markets, such as the Middle East and Africa, India, and Latin America, saw double-digit growth rates of 15.2%, 14%, and 13.5%, respectively.
- Order book of TCS is at record high of $10.2 billion in Q1, up from $10 billion in Q4 FY23.
- Attrition rate dropped to 17.8% vs 20.1% of previous quarter, co. added 523 employees during Q1 taking total headcount to 6,15,318.
- Board of the company announced a dividend of Rs.9/share; record date for dividend is 20/07/2023 and payment date is 07/08/2023.
|Particulars (In %)||Q4FY23||Q1FY23|
Commenting on June quarter results, K Krithivasan, CEO and MD said, “It is very satisfying to start the new fiscal year with a string of marquee deal wins. We remain confident in the longer-term demand for our services, driven by the emergence of newer technologies. We are investing early in building capabilities at scale on these new technologies, and in research and innovation, so we can maximize our participation in these opportunities.”
TCS reported muted earnings in Q1FY24 majorly due to the broad based demand concerns in America and BFSI segment. Although the macroeconomic environment is unpredictable, we think TCS will continue to win transactions involving cost optimization, vendor consolidation, and integrated operations. Given the clientele and recent sizable deal wins, we anticipate TCS to be a major gainer. Additionally, a robust deal pipeline of US$10.2 billion and the consumer move to larger banks (TCS’s clients) will fuel medium-term growth. Long-term growth will be fueled by this along with the company’s emphasis on technologies like 5G, IoT, generative AI, virtual reality/metaverse, and digital twin.
|Particulars (In Rs. Cr.)||Q1FY24||Q4FY23||Q1FY23||QoQ%||YoY%|
|Revenue from Operations||59,381||59,162||52,758||0.4%||12.6%|
|Employee Benefit Expenses||35,148||33,687||30,327||4.3%||15.9%|
|Employee benefit Expenses as % of Sales||59.2%||56.9%||57.5%||230 bps||170 bps|
|Equipment & Software licences cost||506||620||217||-18.4%||133.2%|
|Depreciation & Amortisation Expense||1,243||1,286||1,230||-3.3%||1.1%|
|EBIT Margin (%)||23.2%||24.5%||23.1%||-130 bps||10 bps|
|Profit After Tax (PAT)||11,120||11,436||9,519||-2.8%||16.8%|
|PATM (%)||18.7%||19.3%||18.0%||-60 bps||70 bps|
|EPS (in Rs.)||30.26||31.14||25.9||-2.8%||16.8%|
|Segment Revenue %||Q1FY24||Q4FY23||Q1FY23||QoQ%||YoY%||Revenue %|
|Retail and – Consumer Business||9876||9773||8832||1.1%||11.8%||16.6%|
|Communication, Media and Technology||9596||9696||8848||-1.0%||8.5%||16.2%|
|Life Sciences and Healthcare||6636||6585||5667||0.8%||17.1%||11.2%|
|Geography Revenue %||Q1FY24||Q4FY23||Q1FY23||QoQ||YoY|
|North America||52.0||52.4||53.2||-0.4 bps||-1.2 bps|
|Latin America||2.0||1.8||1.8||0.2 bps||0.2 bps|
|UK||16.4||15.7||14.9||0.7 bps||1.5 bps|
|Continental Europe||15||15.1||15||-0.2 bps||-0.3 bps|
|Asia Pacific||7.8||8.0||8.3||-0.2 bps||-0.5 bps|
|India||4.9||5.0||4.8||-0.1 bps||0.1 bps|
|MEA||2.0||2.0||1.8||0.00 bps||0.2 bps|
Source: Company website, EWL Research
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