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TCS announces Rs 18,000 crore buyback; margins disappoint
What’s buzzing:
TCS reported strong numbers on the revenue front but margins declined 60 bps QoQ amid supply side pressures. The company announced an Rs 18,000 crore buyback and also gave Rs 7 per share interim dividend.
Context:
The company reported dollar revenue of US$6,524 mn, up 3% QoQ, 14.4% YoY. In terms of revenue by geographies (in CC terms), North America market (52% of mix), grew +18.0% YoY, while UK and Continental Europe reported healthy growth of +12.7% and 17.5% YoY, respectively. Vertical wise, BFSI, retail & healthcare grew 17.9%, 20.4% and 16.3% YoY, respectively, while Manufacturing, Technology & Services and Media grew 18.3%, 17.7% and 14.4% YoY, respectively. EBIT margin contracted 60 bps QoQ to 25.0% as there was (-70 bps) wage hike impact and (-60 bps) impact due to higher SG&A, which was mitigated by pyramid optimisation (+60 bps), currency tailwind of (+10 bps).
Our Perspective
The company’s net adds for the quarter were highest ever as some of the hiring meant for H2 were front loaded. The demand outlook continues to be strong as clients are accelerating their spending on cloud transformation and new technologies to remain ahead of the curve. However, rising attrition (LTM basis it was higher but on sequential basis it was lower QoQ) amid supply side challenges continue to put pressure on margins. The company has been in active discussion with clients for price increase amid cost pressures and there has been a positive feedback on the same. We estimate revenue, EBITDA, PAT growth of 16.6%, 20.4%, 23.9%, respectively, over FY21-23E.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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