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- 12 Oct 2023
- ICICIdirect Research
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TCS: MIXED BAG - DISAPPOINTMENT ON REVENUES BUT MARGINS AND ORDER BOOKING REMAIN HEALTHY; NEAR TERM OUTLOOK CHALLENGING
TCS - 3190 Change: -19.30 (-0.60 %)News: TCS, reported muted revenues performance with revenues at US$ 7.21 bn, up 4.8% YoY and down 0.2% QoQ on reported basis and (up 2.8% YoY) on CC basis. Lower QoQ topline despite strong order booking was attributed to revenue leakage from existing projects due to deferrals or ramp downs impacting revenue growth. In terms of Key segments, While Communication (+2.3% QoQcc) and Regional Markets (+3.8% QoQcc) drove growth, tech (-1.6% QoQcc), Lifesciences (-0.9% QoQcc) and Manufacturing vertical (-0.7% QoQcc) impacted growth. Revenue decline in North America (-0.7 percent QoQcc) for a third straight quarter also impacted growth. The EBIT margins at 24.3%, was up ~110 bps QoQ, owing to productivity improvements contributed by 35 bps savings in employee costs and 50 bps improvement in subcontracting costs.
Views: The positive was healthy orderbook at US$ 11.2 billion, up ~10% QoQ driven by marquee deals (JLR/BSNL worth $1 bn each) bagged in Q1. The company also announced interim dividends of ₹ 9/share and buyback of ₹ 17000 crore at 15% premium to the cmp. The management maintained that near term demand challenges remain and refrained from giving recovery timelines, implying a slow and gradual recovery ahead. The stock could react negatively in short term on growth uncertainty ahead and lower than expected premium on buyback.
Impact: Negative