|Result Analysis: Tata Consultancy Services Ltd.||Result Update: Q3FY23|
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.
Revenue of the company increased by 19.1% YoY and 5.3% QoQ to Rs.58,229 cr. as against the broader estimates of Rs.57,205 cr.
Operating profit margin improved sequentially to 24.5% vs 24% in Q2FY23.
Net Profit increased by 3.98% QoQ (despite current global headwinds) to Rs.10,846 cr. compared to the estimates of Rs.11,083 cr.
Reported strong net Cash from Operations in the Q3FY23 at Rs.11,154 cr. which is 102.84% of the net profit.
Among industries Manufacturing grew 5%, BFSI grew 4.9%, Retail & CPG grew 4.56%, Communications & Media grew 4.24% and Life Sciences & Healthcare grew 5.92% sequentially.
Major markets i.e. North America showed degrowth of 0.89% while Europe grew 2.41% quarterly; Asia-pacific showed decline of 1.25% sequentially while Middle East showed major decline of 5.26%. India was at par compared to previous quarter.
Order book of TCS is at $7.8 billion, within the range of 7bn-8bn of management guidance vs $8.1 billion in the previous quarter.
Attrition rate dropped after the sequential uptick from last six quarters to 21.3% from the previous 21.5%.
Net headcount addition declined first time since the pandemic by 2,197; total workforce stood at 6,13,974.
Announced total dividend of Rs.75/share which includes special dividend of Rs.67 and interim dividend of Rs.8/share.
Commenting on December quarter results, Rajesh Gopinathan, CEO and MD said, we are pleased with our strong growth in a seasonally weak quarter, driven by cloud services, market share gains through vendor consolidation, and continued momentum in North America and UK. Looking ahead, and beyond current uncertainties, our longer-term growth outlook remains robust.
Samir Seksaria, CFO, said, improved productivity, currency support and abating supply side challenges helped expand our operating margin in Q3. This gives us greater confidence in our ability to steer our profitability towards our preferred range, while continuing to invest in building newer capabilities to support our growth and market share gains.
|Market Cap. (Cr.)||1214695.25|
|52 Wk. high/low||4046 / 2926|
|Book Value (Rs)||265|
|Sector||IT – Software|
|Promoters & Promoter Group||72.27%|
|Particulars (In Rs. Cr.)||Q3FY23||Q2FY23||Q3FY22||QoQ %||YoY%|
|Revenue from Operations||58,229||55,309||48,885||5.28%||19.11%|
|Employee Benefit Expenses||32,467||31,041||27,168||4.59%||19.50%|
|Employee benefit Expenses as % of Sales||55.76%||56.12%||55.58%||-36bps||18bps|
|EBIT Margin (%)||24.53%||24.01%||25.03%||52bps||-50bps|
|Profit After Tax||10,846||10,431||9,769||3.98%||11.02%|
|EPS (in Rs.)||29.64||28.51||26.41||3.96%||12.23%|
|Segment Revenue (In Rs. Cr.)||Q3FY23||Q2FY23||Q3FY22||QoQ %||YoY%|
|Retail and – Consumer Business||9,661||9,240||7,852||4.56%||23.04%|
|Communication, Media and Technology||9,753||9,356||8,254||4.24%||18.16%|
|Life Sciences and Healthcare||6,354||5,999||5,169||5.92%||22.93%|
|Geography Revenue||Q3FY23||Q2FY23||Q3FY22||QoQ %||YoY%|
|Segment Revenue %||Q3FY23||Q2FY23||Q3FY22|
|Retail and – Consumer Business||16.59%||16.71%||16.06%|
|Communication, Media and Technology||16.75%||16.92%||16.88%|
|Life Sciences and Healthcare||10.91%||10.85%||10.57%|
Conference call Highlights:
All verticals performed well with regional markets up 7.3% QoQ, manufacturing is doing better than expected.
Performance in revenue and profits can be seen through strong customer portfolio, number of customers who contribute US$ 100M+ rose by 1 to 59 customers YoY basis.
Total order book remains in the range of 7-9bn as provided but is sequentially down. US deal pipelines remain strong and positive but UK and Europe regions are creating challenging environment because of the less IT spending.
Realization both on a QoQ basis as well as YoY basis is improving and expecting this trend to continue.
TCS is seeing an uptick in vendor consolidation deals as clients prefer full service offerings; seeing more consolidation in pipelined deals in areas such as BFSI, healthcare and telecom.
Clients are focusing on cloud transformation and the company saw several cloud transformation deals in the quarter.
Attrition rate has peaked out previously and has declined slightly in the quarter; confident of this declining trend to continue.
Margin improved sequentially due to the ease in elevated expectation of salaries and the backfilling retention expenses.
Steadily improving margins and expressed focus on exiting Q4 at 25% also confident in meeting medium-term double-digit growth targets.
TCS showed Q3FY23 result as per street expectations despite seasonally weak quarter; Overall segments of the company grew in the range of 5%-10%. While in the geographies, UK and Europe showed yearly degrowth representing the current slowdown in overall IT spending. Going forward Europe still presents challenging environment for the company for the FY24. Further quarters would give the clear picture regarding the global outlook. The softening order inflow including declining hiring trend as well as cautionary commentary on specific markets from the management points out to the moderating growth in FY24. Although overall medium to long term path for IT spending is strong and being one of the leader in the sector TCS would be the key beneficiary. Hence we remain positive for the company over a longer horizon
Source: Company website, EWL Research
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