TCS’ June quarter numbers were a miss on margin, profit and dollar revenue growth, even as the management commentary suggested demand visibility for FY23 remains intact. A few analysts have cut FY23 and FY24 earning estimates for by 1-4 per cent and suggested a price target for the stock in a wide range of Rs 3,200-5,000.
Revenue reported by TCS at $6,780 million, up 15.5 per cent YoY in CC terms, fell short of Street’s estimate of $6,799 million. Operating margin came in at 23.1 per cent, missing Street’s estimate of 23.6 per cent due to much higher supply-side pressure.
Deal win TCVs stayed at $8.2 billion including a couple of $400 million-plus deals, translated book-to-bill ratio of 1.21 times, which was in-line with its long-term average.
The management highlighted that the demand environment and deal pipeline continue to be strong, but it remained vigilant on macroeconomic uncertainties.
said it is reducing dollar revenue growth forecast to incorporate cross-currency headwinds.
The brokerage cut FY23 EPS estimate by 4 per cent and FY24 EPS by 3.7 per cent.
“Demand environment continues to remain healthy despite macro uncertainties. Margins are expected to improve over the course of the year. We believe strong demand and pipeline are likely to keep up earnings growth in coming quarters,” Edelweiss said while suggesting unchanged target price of Rs 5,000.
Emkay Global has cut FY23-25 EPS estimates by 1-3 per cent due to the Q1 miss. The demand environment remains healthy in the near term, he said, adding that macro uncertainties are weighing on the stock’s valuations. This brokerage has maintained ‘Hold’ on the stock with a revised target of Rs 3,200 from Rs 3,250 earlier.
For Prabhudas Lilladher, TCS Q1 results were a miss on both revenue and margins.
Reliance Securities said TCS is likely to be one of the key beneficiaries of medium-term uptrend in technology spending. It expects TCS to gain market share on the back of vendor consolidation and captive monetisation efforts.
“However, moderation in EBIT margins and lower order book would reduce the pace of earnings growth going ahead and may lead to downward revision to valuation multiple. We are positive on the structural IT story and remain constructive on TCS being a key beneficiary of the IT up cycle. We remain positive on stock given its strong revenue growth, elevated EBIT margin and industry leading return ratios,” it said.
Ashis Dash, Analyst at Sharekhan said margin for the quarter missed our expectations owing to higher-than usual wage revision (150 bps QoQ), higher travel expenses (1.7 times QoQ) and rising subcontractor expenses.
Deal TCVs, deal pipeline, client addition (added clients across large revenue buckets sequentially) and cash conversion remained strong , he said.
Net hiring of employees moderated to 14,136 on both qoq and yoy basis given seasonality in fresher hiring in Q1.
“Though attrition on LTM basis increased by 230bps qoq to 19.7 per cent, it is expected to improve from Q3FY2023 onwards. Further, margin is likely to improve in coming quarters on QoQ basis, aided by better pricing, operational efficiencies (pyramid rebalancing, higher utilisation, etc) and currency tailwinds,” Dash of Sharekhan said.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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