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|
|Market Cap. (Cr.)||1320990.75|
|52 Wk. high/low||3680 / 3053|
|Book Value (Rs)||247.01|
|Sector||IT – Software|
TCS reported marginal increase of 0.5% in the revenue on sequential basis to Rs.59,692 cr. while Net profits increase of 2.4% QoQ to Rs.11,342 cr. in the second quarter of FY24. The prolonged slowdown in discretionary spending and clients reprioritizing cost-cutting programs were the main causes of the muted revenue growth.
EBIT increased by 5.3% QoQ and EBIT Margin improved by 110 bps to 24.3% due to the reduction of number of new hiring and decrease in software license cost.
Among segments, BFSI i.e. the major contributor in the revenue showed subdued growth of 0.8% QoQ. Retail, Communication and Life Sciences & Healthcare segments also declined by 1%, 0.3% and 0.2% respectively on QoQ basis. While the demand was seen in the manufacturing segment with the growth of 2.7% QoQ in the quarter.
TCS’s growth in the U.K. was higher than in its traditional strongholds of North America and Europe. The U.K. saw a growth rate of 10.7% YoY on CC basis, while North America and Europe continued slower growth rate. Middle East and Africa region is growing strong with 15.9% YoY.
The deal momentum remained strong as TCS earned the second-highest deal total contract value ever of $11.2 billion in Q2, with a book-to-bill ratio of 1.6 times.
Attrition rate dropped to 14.9% vs 17.8% of previous quarter, company lost 6,333 associates during the quarter, and had a closing headcount of 608,985 associates.
Board of the company announced a dividend of Rs.9/share; record date for dividend is 19/10/2023 and payment date is 07/11/2023.
Company also proposed a tender offer to buyback shares worth of Rs.17,000 crore at share price of Rs.4,150 which is ~15% premium of the CMP.
Commenting on September quarter results, K Krithivasan, CEO and MD said, “Our clients continue to entrust us with critical new technology initiatives, and large programs to digitally transform their IT and business operating models. Strong deal momentum delivered us a very large order book in Q2 – our second highest TCV ever in a quarter, and good pipeline. The resilience of demand for our services, our clients’ willingness to commit to long tenure programs and their continued appetite for experimentation with Gen AI and other new technologies give us confidence in our longer-term growth prospects.”
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.
|Particulars (In Rs. Cr.)||Q2FY24||Q1FY24||Q2FY23||QoQ%||YoY%||H2FY24||H2FY23||YoY%|
|Revenue from Operations||59,692||59,381||55,309||0.5%||7.9%||1,19,073||1,08,067||10.2%|
|Employee Benefit Expenses||35,123||35,148||31,041||-0.1%||13.2%||70,271||61,368||14.5%|
|Employee benefit Expenses as % of Sales||58.8%||59.2%||56.1%||-0.4%||2.7%||59.0%||56.7%||2.2%|
|Equipment & Software licences cost||462||506||401||-8.7%||15.2%||968||618||56.6%|
|Depreciation & Amortisation Expense||1,263||1,243||1,237||1.6%||2.1%||2,506||2,467||1.6%|
|EBIT Margin (%)||24.3%||23.2%||24.0%||110 bps||30 bps||23.7%||23.6%||20 bps|
|Profit After Tax (PAT)||11,342||11,074||10,431||2.4%||8.7%||22,416||19,909||12.6%|
|PAT Margin (%)||19.0%||18.6%||18.9%||40 bps||10 bps||18.83%||18.42%||40 bps|
|EPS (in Rs.)||31.00||30.26||28.51||2.4%||8.7%||61.26||54.41||12.6%|
|Segment Revenue (In Rs. Cr.)||Q2FY24||Q1FY24||Q2FY23||QoQ%||YoY%||Revenue %|
|Retail and – Consumer Business||9,773||9,876||9,240||-1.0%||5.8%||16.4%|
|Communication, Media and Technology||9,572||9,596||9,356||-0.3%||2.3%||16.0%|
|Life Sciences and Healthcare||6,625||6,636||5,999||-0.2%||10.4%||11.1%|
|Geography Revenue %||Q2FY24||Q1FY24||Q2FY23||QoQ||YoY|
|North America||51.7||52.0||54.3||-0.3 bps||-2.6 bps|
|Latin America||2.0||2.0||1.7||0.0 bps||0.3 bps|
|UK||16.5||16.4||14.5||0.1 bps||2.0 bps|
|Continental Europe||14.9||14.9||14.5||0.0 bps||0.4 bps|
|Asia Pacific||7.8||7.8||8.0||0.0 bps||-0.2 bps|
|India||4.9||4.9||5.1||0.0 bps||-0.2 bps|
|MEA||2.2||2.0||1.9||0.2 bps||0.3 bps|
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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