Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities and Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities
We maintain ADD on TCS, following a strong 4Q performance, robust growth indicators, and positive commentary (3-5 years structural growth drivers). The near-term growth visibility is high, supported by strong bookings (4Q book-to-bill higher than FY20 and 9MFY21 book-to-bill) and higher mix of smaller deals. We believe TCS' calibrated focus on upstream/consulting business will increase its addressable market. The industry-leading execution continues with markers such as decline in attrition (though uptick in sub-con), reversion to normal wage cycle, and investments in up-skilling (enabling partnerships, solution expertise). TCS' commentary on supply-side (no concerns) was a contrast to Accenture's commentary (reversion of attrition to pre-COVID level), and we believe that the uptick in demand will increase the attrition differential within the sector. Core verticals look healthy with strong bookings in BFSI and Retail & CPG (both in value and volume terms). Our target price of INR 3,470 is based on 28x Mar-23E EPS with EPS CAGR at 17% over FY21-23E.
4QFY21 highlights: (1) Revenue came at the highest ever 4Q in the past ten years at 4.2% QoQ CC (5.9% YoY). (2) EBIT margin hit a 22-quarter high at 26.8%, +23bps QoQ supported by higher gross margin, offset by higher sub-con. (3) Net addition was robust in 4Q at 19,388. (4) BFSI and Retail & CPG verticals grew 7% QoQ and 4% QoQ in CC terms, supported by ramp-up of large deal wins and strong bookings during the quarter. (5) Deal TCV of USD 9.2bn (book-to-bill 1.54x) included NorthAm bookings at USD 4.2bn, BFSI bookings at USD 3.9bn, and Retail & CPG bookings at USD 4.2bn.
Outlook: Accelerated cloud adoption, vendor consolidation, and uptick in transformational deals will support the flight to quality. We have factored in USD revenue growth of 15.9%/10.9% for FY22/23E with 1QFY22 at 3.1% QoQ. EBIT margin for TCS is factored in at 26.4%/27.5% for FY22/23E. Valuations are at 30.4/26.2x with FY21-23E EPS CAGR at 17%.
Shares of TATA CONSULTANCY SERVICES LTD. was last trading in BSE at Rs.3105 as compared to the previous close of Rs. 3241.45. The total number of shares traded during the day was 247729 in over 21983 trades.
The stock hit an intraday high of Rs. 3230 and intraday low of 3074.55. The net turnover during the day was Rs. 771803291.