First Cut of TCS Q1 Result FY23 - Reliance Securities

Mr. Mitul Shah - Head of Research at Reliance Securities.

TCS (TCS IN) 1QFY23 Result First Cut

- TCS reported a subdued performance in 1QFY23 with EBIT margin coming in at 23.1%, 60bps below our estimate of 23.7%.

- Revenue grew by 1% QoQ/10% YoY in USD terms to US$6,780mn, vs. our estimate of US$6,807 (consensus US$6,803)

- EBIT de-grew by 4% QoQ (up 5% YoY) to Rs121.8bn while EBIT margin stood at 23.1% (down 186bps QoQ /down 242bps YoY), 60bps below our estimate of 23.7% (Consensus 23.5%)

- Its net income stood at Rs94.8bn (down 5% QoQ/ up 5% YoY), while adjusted margin came in at 18% vs. our estimate of 18.6%.

- LTM attrition in IT services stood at 19.7% compared to 17.4% in 4QFY22.

- Order book stood at US$8.2bn in 1QFY23 as against US$11.3bn in 4QFY22.

Our View: 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. However, moderation in EBIT margins and lower order book would reduce pace of earnings growth going ahead and may lead to downward revision to valuation multiple. We are positive on structural IT story and remain constructive on TCS being key beneficiary of IT up cycle. We remain positive on stock given its strong revenue growth, elevated EBIT margin and industry leading return ratios. At present we have BUY rating on the stock.

Source : Equity Bulls

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FirstCut TataConsultancyServices TCS Q1FY23 RelianceSecurities