TCS - 4QFY22 Result Update - Strong Deal Wins; Outlook Remains Solid

TCS' 4QFY22 Revenue grew by 3% QoQ/12%YoY in USD to US$6,696mn, broadly in line with our estimate of US$6,684mn. Constant currency growth stood at 14.3% YoY. Revenue growth remained broad based across verticals and geographies with strong growth in Americas. EBIT margin stood at 25% (flat QoQ/down 189bps YoY), 10 bps above our estimate of 24.9% and in line with consensus estimate of 25% due to price hikes despite record high hiring. Net income stood at Rs99.3bn which is 1% below our expectations. Deal wins stood at US$11.3bn in 4QFY22 as against US$7.6bn in 3QFY22 with book-to-bill ratio remaining healthy at 1.7x. Management indicated strong pipeline which suggests medium-long term growth resiliency. During the quarter, company carried out buy back of Rs180bn, reducing equity by ~1%. We expect TCS is likely to be one of the key beneficiaries of medium-term uptrend in technology spending. We retain BUY recommendation and revise our target price to Rs 4,250 (vs. earlier Rs4,400), valuing stock at an unrevised P/E multiple of 30x on FY24E earnings.

Broad based Growth across Verticals; High Attrition Flattening Gradually
(1) TCS reported broad based revenue growth across verticals led by Retail & CPG (22.1% YoY CC), Manufacturing (19% YoY CC), Communication & Media (18.7% YoY CC) and Technology & Services (18% YoY CC) (2) Across geographies, revenue growth was led by Latin America (20.6% YoY CC) and North America (18.7% YoY CC) (3) LTM attrition in IT services stood at 17.4% compared to 15.3% in 3QFY22. Management indicated that attrition is flattening out on MoM basis currently and expects it to moderate in next 1-2 quarters (4) During 4QFY22, company added net workforce of around 35.2k people (highest ever quarterly addition) and ~103K in FY22 taking overall workforce to ~592K. The company expects healthy fresh hiring activity in FY23E which is key indicator of future growth.

Execution on Track with Broadly Flat Margin in FY23E

TCS reported 4QFY22 EBIT margin at 25% (flat QoQ) due to price hikes amid high attrition. Additionally, we expect FY23E margins to get impacted because of higher SG&A cost (higher attrition & resumption of offices) and accelerated hiring over next two quarters. However favorable currency and better pricing along with scale would nullify the impact. We forecast EBIT margin likely to remain in the range of 25.1-26% over FY23-FY24E.

Growth Resiliency Deserves Premium Valuation

At CMP, TCS trades at 30.6x/26.1x on FY23E/FY24E EPS which is over 6% premium to larger peer like Accenture. Recently, Accenture has also guided 24-26% revenue growth for FY22E which bodes well for Indian IT services industry. We expect TCS is likely to be one of the key beneficiaries of medium-term uptrend in technology spending. We expect TCS to gain market share on the back of vendor consolidation and captive monetization efforts. We remain positive on the stock given its strong revenue growth (14% over FY22-24E), elevated EBIT margin and industry leading return ratios.

Shares of Tata Consultancy Services Limited was last trading in BSE at Rs. 3661.30 as compared to the previous close of Rs. 3691.45. The total number of shares traded during the day was 106056 in over 14614 trades.

The stock hit an intraday high of Rs. 3710.05 and intraday low of 3657.00. The net turnover during the day was Rs. 389525360.00.

Source : Equity Bulls

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TataConsultancyServices INE467B01029 TCS Q4FY22 ResultUpdate FY2022 RelianceSecurities