Q4FY23 Review: TCS: Revenue miss on discretionary pause; deals surge

13 Apr 2023 , 10:08 AM

Tata Consultancy Services (TCS) reported revenue growth of +0.6% cc QoQ/10.7% cc YoY in USD terms in Q4, below the estimates of IIFL Capital Services. EBIT margins at 24.5% (flat QoQ) were also tad below estimates of IIFL Capital Services. Management indicated that the weakness in revenue was attributable to a pause in some discretionary projects by clients, even as large transformational deals continue to ramp up. 

Margin miss was due to lower revenues and higher onsite costs. Deal wins were strong at USD10 billion (+28% QoQ, 1.4X book-to-bill), with potentially higher ACV giving visibility for growth in FY24. TCS saw a marginal headcount increase in Q4, while attrition dropped >400 basis points annualized. Abating supply-side challenges should lead to improvement in margins in FY24, believe analysts at IIFL Capital Services. They have marginally trimmed their EPS/TP, pegged at 24x 2YF EPS, as they forecast 10%/13% USD cc revenue/EPS CAGR over FY23-25. 

Analysts at IIFL Capital Services have maintained their Buy rating on TCS as they see better resilience in growth and margins for TCS this year, compared to peers.