TCS Q3 Results Review - Inline Operating Performance; Deal Booking Robust At $8.1 Billion: Yes Securities

Yes Securities Report

Tata Consultancy Services Ltd. reported inline operating performance for the quarter. It reported USD revenue growth of 1.0% QoQ (up 1.7% YoY in constant currency terms); while Indian rupee reported growth was 1.5% QoQ.

The revenue growth was led by strong performance in energy and utilities (up 11.8% YoY cc terms) and manufacturing (up 7.0% YoY cc terms). Ebit margin decreased by 83 bps QoQ to 23.4% led by seasonal furloughs. Last twelve months attrition was down 160 bps QoQ to 13.3%.

The near term demand environment remains challenging as clients remain cautious across verticals and are taking longer time for decision making. It has resulted in slowing down of discretionary IT projects and this continues to impact near term revenue performance.

Also, it continues to work on utilising Generative AI in select use cases for client related projects.

The operating margin is expected to improve over next two quarters led by improving employee pyramid and falling employee attrition.

We estimate revenue compound annual growth rate of 10.4% over FY23‐26E with average Ebit margin of 24.8%.

We maintain our 'Add' rating on the stock with revised target price of Rs 4,175/share at 25 times on FY26E earnings per share.

The stock trades at price-to-earning of 25.8 times/22.4 times on FY25E/FY26E EPS.

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