TCS grew by a wholesome 3.2% cc q-o-q, (on an already excessive base of Q3), which was largely in step with CS-e of three% (consensus 2.7%). TCS closed FY22 with a strong 15.3% cc y-o-y progress. Total contract worth (TCV) got here in at $11.3 bn in Q4FY22 (massive offers of $1.8 bn).
Operating margin was flat q-o-q at 25%, 30 bp under our expectation of 25.3%. FY22 working margins declined by solely 60 bp regardless of the sharp rise in prices this yr. Higher retention, hiring and subcontracting prices had been offset by forex and working leverage advantages. Attrition has began flattening. TCS highlighted that they’re witnessing pricing enchancment in renewals and new contracts. We be aware that ISG, in its Q1CY22 evaluate, highlighted 4-7% pricing enhance with in-demand abilities like cybersecurity and engineering commanding as excessive as 15% enhance. In distinction, TCS talked about that it expects increments to be within the 6-8% vary in FY23 (much like FY22).
We minimize FY23e/24e EPS by 3-4% to account for close to time period decrease margins and introduce FY25e EPS of Rs 155. We minimize our TP to Rs 4,350 (from Rs 4,600) as we cut back TCS’ 12M ahead P/E a number of to 30x (in step with Accenture’s final 3 months common a number of) from 33x earlier and roll ahead our valuation to Jun-24 finish.
Largely in-line quarter: Growth was broad-based throughout verticals. BFSI and Retail led the expansion, whereas North America stood out amongst geographies. TCS closed FY22 with a strong 15.3% cc y-o-y progress. Total contract worth (TCV) got here in at $11.3 bn in Q4FY22, together with massive offers of $1.8 bn. Even on excluding the massive offers, TCS’ This autumn TCV grew by 25% q-o-q and three% y-o-y.
Ebit margins in a detailed vary regardless of sharp rise in prices: Net revenue missed estimates by 1.6% regardless of in-line working efficiency, because of decrease different revenue. FY22 working margins declined by solely 60 bp regardless of the sharp rise in prices this yr. Attrition has began flattening for the corporate on a month on month foundation.
Pricing enchancment in renewals and new contracts: TCS highlighted that they’re witnessing pricing enchancment in renewals and new contracts. We be aware that ISG, in its Q1CY22 evaluate, highlighted 4-7% pricing enhance with in-demand abilities like cybersecurity and engineering commanding as excessive as 15% enhance. We consider worth will increase ought to assist the corporate going ahead. TCS talked about that it expects increments to be within the 6-8% vary in FY23 (much like FY22).
Maintain OUTPERFORM with a brand new TP of Rs 4,350: Management highlighted multi-year excessive progress setting with tech spends being prioritised. However, margins are anticipated to be unstable within the close to time period. Accordingly, we minimize FY23e/ FY24e EPS by 3-4% and introduce FY25e EPS of Rs 155. We minimize our TP to Rs 4,350 (from Rs 4,600) as we cut back TCS’ 12M ahead P/E a number of to 30x from 33x earlier and roll ahead our valuation to Jun-24 finish. We reiterate our optimistic view on TCS.
Source: www.financialexpress.com”
