Tata Consultancy Services - Q2FY21 First Cut - ICICI Securities

(CMP - Rs. 2,737; MCap - Rs. 10,27,177 crore)

Tata Consultancy Services' (TCS) results were above our estimates. The company reported 4.8% QoQ growth in dollar revenues (in constant currency terms) which was above our estimate of 2.6% QoQ growth. In constant currency terms, the growth in revenues was across geographies with UK and North America growing by 3.8% QoQ and 3.6% QoQ, respectively and Europe, Middle East & Asia Pacific growing at 6.1% QoQ, 8.0% QoQ and 2.9% QoQ . In terms of verticals the growth was across verticals (except Communication & Media) led by BFSI growing by 6.2% QoQ, Retail by 8.8% QoQ, Lifescience & Healthcare growing by 6.9% QoQ, Technology & Services by 3.1% and Manufacturing by 1.4% QoQ. The company's margins increased by 260 bps mainly due to improvement in gross margins and lower SG&A expenses. The company's attrition stood at 8.9%.

The company has done gross hiring of 16000 (7000 was fresher hiring) and net addition of 9864. The company will resume it's wage hikes in H2FY21E and will be broadly in line with what it was in previous years. The company has also reported healthy deal wins and the company deal pipeline has increased 24.6% QoQ & 34.4% QoQ to US$8.6 billion we believe this is based on large deal won in the current quarter. The company has achieved the normalcy in revenues & margins in current quarter, which was expected in H2FY21E. The company has increased US$100 million clients by two, US$20 million by three and US$5 million by 11 on YoY basis.

Q2FY21 Earnings Summary

- The company's US$ revenues increased 7.2% QoQ to $5,424 million, above our 3.8% QoQ growth and $5,251 million estimate

- Rupee revenues increased 4.7% QoQ to Rs. 40,135 crore (above our estimate of Rs. 39,069 crore)

- EBIT margins increased 260 bps to 26.2% (above our estimate of 24.9%) mainly due increase in utilisation (led by higher demand) and cost rationalisation

- The company reported PAT of Rs. 7,475 crore. However, the current quarter includes a one-time exceptional provision of Rs. 1,218 crore for provision towards legal claim. Adjusting for the same, adjusted PAT stood at Rs. 8,693 crore was above our Rs. 7,586 crore estimate due to higher than expected operating margins and other income

- The TCS board has approved a buyback of Rs. 16,000 crore to buyback ~5.33 crore shares at Rs. 3,000/share. The company has also declared an interim dividend of Rs. 12/share (the record date is October 15, 2020 and Payment date is November 3, 2020)

We believe technology is at the cusp of multi-year transformation cycle and TCS will be the key beneficiary of the same over the coming years. We would be revisiting our estimates and target price shortly.

Shares of TATA CONSULTANCY SERVICES LTD. was last trading in BSE at Rs.2737.4 as compared to the previous close of Rs. 2716.15. The total number of shares traded during the day was 277896 in over 19870 trades.

The stock hit an intraday high of Rs. 2769 and intraday low of 2703. The net turnover during the day was Rs. 758445543.

Source : Equity Bulls

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