TCS Q4 review, ICICI Securities

Tata Consultancy Services Ltd. reported revenues of $7,195 million, up 0.6% QoQ constant currency, up 1.7% QoQ U.S. dollar, above our estimate of up 0.1% QoQ CC, but lower than consensus expectations of ~0.9% QoQ CC. Soft revenue growth during the quarter was due to pause in discretionary spends.

TCS’ Ebit margin came in at 24.5%, flat QoQ, lower than our and consensus expectations of 25% due to higher onsite manpower costs led by replacement of subcontractors and additional onsite hiring. Plus, likely unanticipated pausing of discretionary revenue impacted margins as manpower costs were sticky.

Overall profit after tax was lower by ~1.4% than consensus estimates due to miss on margins. Orderbook at $10 billion for Q4 was relatively strong on QoQ basis, but down 11.5% YoY, and it includes a mega deal worth $700 million with Phoenix Group.

Total contract value was broad-based with North America TCV at $5 billion, banking, financial services and insurance TCV at $3 billion, retail TCV at $1.3 billion.

Headcount growth was quite weak at 0.1% QoQ with net addition of 821 employees. Attrition fell 4% QoQ indicating easing of supply-side pressures.

For report, https://www.communicationstoday.co.in/tata-consultancy-services-buy/

CT Bureau