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  • 11 Oct 2022
  • ICICIdirect Research

TCS REPORTS STRONG NUMBERS, MAINTAINS 25% EXIT MARGIN TARGET BY Q4FY23

TCS - 4169 Change: -10.40 (-0.25 %)

News:

 TCS reported 4% QoQ, 15.4% YoY CC revenue growth for the quarter. Dollar revenues were up 1.4% QoQ, 8.6% YoY to US$6,877 million (mn) implying 260 bps cross currency headwinds for the quarter. In terms of revenue by geographies (in CC terms), North America market (54% of mix), grew 17.6% YoY while UK and Continental Europe reported growth of 14.8% and 14.1% YoY, respectively. Vertical wise, growth was aided by Retail, BFSI, media & comm and healthcare, which grew 22.9%, 13.1%, 18.7% and 14.5% YoY, respectively. LTM attrition was at 21.5% (up from 19.7% in the previous quarter). It added 9,840 net associates in Q2, taking total to 616171. On a reported basis, TCV remained steady at US$8.1 bn. EBIT margin for the quarter was up 90 bps QoQ at 24%, aided by currency (rupee depreciation against dollar) as well as utilisation improvement while margin headwinds were normalisation of travelling and facility expenses as well as increase in backfilling costs due to high LTM attrition.

View:

 Revenue and margins came in strong and above our as well as street expectations. On the demand side, the demand environment is strong in the US region and deal execution remains at a healthy pace. The company is not seeing any signs of a slowdown there. The Europe region will likely face some challenges in the near term due to geopolitical tensions and consequent energy constraints in the region. LTM attrition is likely to moderate in H2 and is expected to support margins in the near terms along with pricing, despite normalisation of travel and facility expenses as the management-maintained exit margin guidance of 25% in Q4FY23. TCV remains steady and in the guided range of US$7-9 bn. The company hired 35,000 freshers of targeted 45,000 in H1 itself, indicating slower pace of hiring in H2.

Impact:

Positive.