RECORD TCV WINS INDICATE BETTER FY25, NEAR TERM GROWTH CHALLENGES REMAIN

News/Results: TCS reported mostly inline revenue growth but margins came ahead of street expectations. TCS in Q4 reported revenue of US$ 7,363 mn up 1.1% QoQ & 2.3% YoY (in CC terms 2.2% YoY). In rupee terms its reported revenue of INR 61,237 crore up 1.1% QoQ & 3.5% YoY. Geography wise the growth was led by India (6.7% of mix), MEA (2.1% of mix) & UK (16.8% of mix) which reported YoY CC growth of 37.9%, 10.7% & 6.2% respectively while US region (50% of mix) declined by 2.3%. Vertical wise the growth was led by Manufacturing segment (mwhich grew by 9.7% YoY in CC terms while BFSI & Retail declined by 3.2% & 0.3% respectively. The company’s EBIT margin came at 26%, up 100 bps QoQ compared to adjusted margin in Q3 due to the tailwinds of 190 bps of lower subcon costs, better utilization & operating leverage mitigated by the headwinds of 90 bps of higher travel cost & third-party expenses. The company during the quarter won record TCV of US$ 13.2 bn with BFSI, Retail & US reporting TCV of US$ 4.1bn, 1.6 bn & 5.7 bn respectively. The company net employee headcount by 1.8k in Q4 and attrition further declined by 80 bps QoQ to 12.5%. The company declared final dividend of INR 28 per share in Q4. TCS for FY24 reported revenue of US$ 29.1 bn, up 4.1% (3.4% in CC term). The company adjusted EBIT margin came at 24.6% compared to 24.1% in FY23 while PAT margin for FY24 came at 19.3%.

Views: The company reported record TCV wins during the quarter and also during the fiscal year (TCV of US$ 42.7 bn) which was one of the challenging one for the industry. The TCV implies the visibility of strong recovery once the macro headwinds of sticky inflation, higher interest rate & geo-political issues improve. The management indicate that the clients wish to spend on the transformation projects but currently are delaying it or funding the same through saving of cost optimization projects & TCS is well placed to win these deals of vendor consolidation, cost optimization & transformation deals providing a medium to long term growth visibility. The company also indicated that its medium to long term EBIT margin will be in range of 26-28% with the levers being pricing, better utilization & pyramid optimization which believe is achievable.

Impact: Positive