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20 July, 2024 19:21 IST
TCS: Q2FY22 review- Resilient Margins; Hold
Source: IRIS | 11 Oct, 2021, 12.54PM
Rating: NAN / 5 stars.
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Tata Consultancy Services, a leading global IT services, consulting and business solutions organization, on October 8 reported a consolidated net profit of Rs 96,240 million for the quarter ended September 2021 (Q2FY22), registering a 14.1% year-on-year (YoY) growth. The profit was aided by broad-based demand and resilient margins.

The company's consolidated revenue during the July-September period stood at Rs 468,670 million, up 16.8% over a year-ago quarter. The revenue growth in constant currency came in at 15.5% YoY.EBIT (earnings before interest and tax) margin came at 25.60% percent for the September 2021 quarter.

Commenting on the result review, IDBI Capital Equity Research said, "TCS reported Q2FY22 revenue growth of 4%/15.5%, QoQ/YoY in CC and +2.9%/+16.8% QoQ/YoY in USD terms, a slight miss to our estimate. EBIT margin improved by 10bps QoQ to 25.6%. EPS of Rs 26, +6.8%/+18% QoQ/YoY.  TCS continued to maintain its deal win momentum and has secured deals with TCV of USS 7.6 billion versus USD 8.1 billion QoQ. TCS continue to maintain its positive outlook and we believe it will be able to achieve its double-digit revenue growth in FY22.

We fine-tune our forecast and raise our EBIT Margin by 30bps/20bps to 25.8%/25.9% resulting an increase in EPS by 2.6%/5.1% to Rs 106/121 for FY22E/FY23E. We recommend HOLD with a target price of Rs 4,072 (versus Rs 3,498) based on PER of 32x FY23E."

Key highlights

Decent growth, but missed street expectation

Q2FY22 revenue grew by 4%/16.8% QoQ/YoY in CC and +2.9%/+16.8% QoQ/YoY in USD terms. Revenue growth was broad based driven by growth across geographies and verticals. All verticals and geographies registered a strong double digit growth. Manufacturing (9.9% of revenue) led the growth with +21.7% YoY in CC terms. Similarly, all the geographies posted a sequential growth. Growth was led by North America (50.3% of revenue) grew +17.4% YoY in CC terms. TCS reported robust deal wins of USD 7.6bn for the quarter, and had a mix of small and large deals. USD 100mn+ clients grew by 4 QoQ to 54 and LTM attrition remained elevated at 11.9% vs 8.6% QoQ.  Company declared a final dividend of Rs 7 per share.

Multi-year growth and sustained margins key positive

IT industry is expected to report multi-year growth led by growing digitization of business. The growth is expected to be in three phases namely 1) cloud migration 2) Ancillary tech like AI, IOT around cloud 3) New business models. TCS being the one the leaders of IT industry will be a key beneficiary of the same. This coupled with sustain margins, high return ratios and healthy capital allocation are long term positives for the stock.he use of information provided on its website.

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