"Tata Consultancy Services’ (TCS) results were above our estimates", said ICICI Direct in the first reaction on the quarterly results of the largest Indian IT company.
The broking firm highlighted, "The company reported 4.8% QoQ growth in dollar revenues (in constant currency terms) which was above our estimate of 2.6% QoQ growth. In constant currency terms, the growth in revenues was across geographies with UK and North America growing by 3.8% QoQ and 3.6% QoQ, respectively and Europe, Middle East & Asia Pacific growing at 6.1% QoQ, 8.0% QoQ and 2.9% QoQ." It further said that in terms of verticals the growth was across verticals (except Communication & Media) led by BFSI growing by 6.2% QoQ, Retail by 8.8% QoQ, Lifescience & Healthcare growing by 6.9% QoQ, Technology & Services by 3.1% and Manufacturing by 1.4% QoQ. The company’s margins increased by 260 bps mainly due to improvement in gross margins and lower SG&A expenses. The company’s attrition stood at 8.9%.
The company has done gross hiring of 16000 (7000 was fresher hiring) and net addition of 9864. The company will resume it’s wage hikes in H2FY21E and will be broadly in line with what it was in previous years. The company has also reported healthy deal wins and the company deal pipeline has increased 24.6% QoQ & 34.4% QoQ to US$8.6 billion. ICICI Direct believes that this is based on large deal won in the current quarter. The ICICI Direct report mentions that the company has achieved the normalcy in revenues & margins in current quarter, which was expected in H2FY21E. The company has increased US$100 million clients by two, US$20 million by three and US$5 million by 11 on YoY basis.
Q2FY21 Earnings Summary by ICICI Direct
· The company’s US$ revenues increased 7.2% QoQ to $5,424 million, above our 3.8% QoQ growth and $5,251 million estimate
· Rupee revenues increased 4.7% QoQ to Rs. 40,135 crore (above our estimate of Rs. 39,069 crore)
· EBIT margins increased 260 bps to 26.2% (above our estimate of 24.9%) mainly due increase in utilisation (led by higher demand) and cost rationalisation
· The company reported PAT of Rs. 7,475 crore. However, the current quarter includes a one-time exceptional provision of Rs. 1,218 crore for provision towards legal claim. Adjusting for the same, adjusted PAT stood at Rs. 8,693 crore was above our Rs. 7,586 crore estimate due to higher than expected operating margins and other income
· The TCS board has approved a buyback of Rs. 16,000 crore to buyback ~5.33 crore shares at Rs. 3,000/share. The company has also declared an interim dividend of Rs. 12/share (the record date is October 15, 2020 and Payment date is November 3, 2020)
ICICI Direct concludes in its report that technology is at the cusp of multi-year transformation cycle and TCS will be the key beneficiary of the same over the coming years. It says, "We would be revisiting our estimates and target price shortly." (Share Manthan, October 7, 2020)
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