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TCS Q4FY22 result review –Deal wins strong; high attrition continues to pose challenge...

ICICI Securities 12 Apr 2022

What’s buzzing:

TCS reported TCV of US$11.3 billion (bn) for the quarter, adjusted to two large deals of US$1 bn each, TCV is at US$9.3 bn, up 22.4% QoQ and 1,1% YoY

Context:

The company reported dollar revenue of US$6,696 mn, up 2.6% QoQ, 11.8% YoY. In terms of revenue, by geographies (in CC terms), North America market (52% of mix), grew +18.7% YoY while UK and Continental Europe reported relatively muted growth of 13% and 10% YoY, respectively. Asia Pacific, India and MEA regions grew 5.5%, 7.0% and 7.3% YoY, respectively. Vertical wise, BFSI, retail & healthcare grew 12.9%, 22.1% and 16.4% YoY while manufacturing, technology & services and media grew 19.0%, 18.0% and 18.7% YoY, respectively. EBIT margin was flattish QoQ at 25% as there was (-90 bps) impact due to supply side pressure while it was mitigated by operating efficiency and 10 bps due to currency. Attrition was at 17.4% (up from 15.3% in the previous quarter) and the company added 35,209 associates taking the total to 592,195. The company declared a final dividend of Rs 22 per share.

Our Perspective:

The company’s deal wins remained strong, which is a reflection of overall strong demand outlook. TCS’ growth in continental Europe has been lower for the quarter and can be attributed to some re-allocation of tech budget in the region due to emerging geopolitical challenges. The growth from this region is expected to moderate in the near term till we get further clarity. The company’s hiring remained at elevated levels as it added over 100,000 in FY22, which is 2.5x of FY21 to tackle attrition and also guided for 40,000 fresher additions in FY23. Subcontractor costs also remained higher at 8.8% in FY22 vs. 7.7% in FY21 due to travel restriction. We believe attrition will post a challenge even beyond FY23 and is expected to put pressure on margins. Only saviour in this case would be price hike in contracts, which would be more gradual in nature, in our view. We estimate revenue, EBITDA, PAT growth of 11.1%, 11.7%, 13.2%, respectively, over FY22-24E.

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