TCS Share price down over 4%, turns TOP LOSER ON NIFTY as Q4 numbers disappoint

Global IT services, consulting and business solutions provider revealed its quarterly results yesterday and today, its share price fell to Rs 3115, down by Rs 131 or 4%. While the TCS results were good, they came in below expectations on some aspects. Sharekhan says that TCS impressed by reporting stellar revenue growth for the last three consecutive quarters, led by strong demand for core transformation services, market share gains and large deal ramp-ups. Further, the company reported highest deal win TCVs, lowest attrition rate, highest net employee addition and healthy cash conversion.

TCS reported a strong constant currency (CC) revenue growth of 4.2% qoq and 5.9% yoy, broadly in-line with our estimates. In US Dollar terms, revenue grew by 5% qoq to $5,989 million, slightly ahead of our estimates. Sharekhan has maintained a Buy rating on TCS with a revised price target of Rs 3750.

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Technical Analysis on TCS:

Ashis Biswas, Head of Technical Research at CapitalVia Global Research recommended a buy on TCS with a target of 3670 with a Stop-loss of 3070 for a medium-term perspective.

Sharekhan says that TCS EBIT margin improved 23 bps qoq to 26.8% (up 175bps yoy), largely in line with our estimates, led by absence of wage revision, strong revenue growth and continued cost savings. Sharekhan added that net profit stood at Rs 9246 cr (up 6.3% qoq / 14.9% yoy) and was broadly in line with our estimates, led by a strong revenue growth and margin expansion.

Sharekhan explained in this report that TCS signed the highest ever deal wins TCV of $9.2 billion for a quarter, up 35% qoq. With strong deal signings in Q4FY2021, total deal wins TCV for FY2021 increased by 17.1% yoy to $31.6 bn, which provides strong revenue visibility going ahead.

TCS management continues see many deal wins going ahead because of:

(1)    core transformation initiatives by clients, including cloud migration, application modernisation and data modernization
(2)    increased outsourcing to drive efficiency and greater productivity

This report highlights that in growth and transformation initiatives, TCS has been investing on new business models, enhancing customer experience and transforming operations. Hence, TCS has been strengthening its alliances and partnerships with large technology providers and domain specialists for creating new service offerings and tools to drive accelerated digital transformation journeys of clients. The company’s strong deal wins in FY2021 indicate its sharpening focus on a larger strategic agenda around growth and transformation theme.

TCS Management indicated that it has taken another round of wage hike effective from April 1, 2021. With a strong exit in Q4FY2021, strong deal wins, robust deal pipeline and higher spends on growth and transformation space, Sharekhan says that it believes that TCS is expected to clock USD revenue of 14.4% in FY2022E.

TCS Key positives:

Sequential revenue growth across all its verticals
Signed deal TCVs of $9.2 billion, highest ever in a quarter
Attrition remained at the lowest level of 7.2%; net hiring remained at 19,388

TCS Key negatives:

CC revenue was down by 0.8% in FY2021

TCS Key Risks:

Rupee appreciation and/or adverse cross-currency movements and/or constraint in local talent supply in the US and a stringent visa regime would affect earning.