TCS Ltd. - Q2 FY23 Earning Highlights | Globe Capital
11-Oct-2022
TCS Ltd. – Q2 FY23 Earning Highlights

The Company beats estimates on profit and growth in the second quarter of financial year 2022-23 (Q2FY23) as it continued to see strong demand for its services.          

Q1 FY23 Earning Overview and Verdict
CMP
Rs. 3119
Verdict
Beats the market estimates

Q2FY23 Earning Key Highlights

  • Its revenue grew 18% YoY to Rs 55,309 crore & it grew 4.8% sequentially on account of good performances across geographies and verticals.
  • The Company reported a net profit of Rs 10,431 crore, which was a rise of 8.4% YoY and 10% sequentially.
  • While revenue, EBIDT (earnings before interest, depreciation, and tax), and net profit figures for Q2 were the firm’s highest ever, the first time that net profit crossed Rs 10,000 crore.
  • Margins: Operating Margin at 24%; Net Margin at 18.9%
  • Surprisingly, both its major markets – the UK and Europe – defied a pessimistic economic outlook, and it posted strong sequential growth in the regions in Q2. The retail sector posted the highest growth of 22.9%
  • AttritionThough the company did well on other parameters it continued to see a rise in attrition at 21.5%. This was higher than 19.7% reported in Q1. As per HR Department it will take another three to four quarters to see attrition below 20%.
  • Interim dividend – TCS has fixed October 18, 2022 as record date and November 7, 2022 as payment date for the second interim dividend of Rs 8 per share.
  • Net Cash from Operations at Rs. 10,675 crore i.e. 102.3% of Net Income
  • Net headcount addition of 9,840. Total workforce strength ~616,17.

Management Takeaways

 

As per the management, the growth this quarter has come with good profitability. It has been able to improve its operating margins by 90 basis points. Importantly, this quarter comes on the back of five quarters of consistent growth.

However, the management added a note of caution on Europe. It needs to remain very vigilant and cautious in interaction with clients. The Company does see an increasing sense of caution in the discussion that we have but it has not yet materialised in its order pipeline.

The firm reported total contract value (TCV) of $8.1 billion, which was slightly lower than $8.2 billion signed in Q1. The TCV did not have any large deals as these deals were taking time to close. The company is, however, confident that it will retain its TCV in that range, it is only natural to expect some softness given the macro environment, especially in Europe.

Valuation & View

Demand for its services continues to be very strong. The Company registered strong, profitable growth across all its industry verticals and in all its major markets. Its order book is holding up well, with a healthy mix of growth and transformation initiatives, cloud migration and outsourcing engagements. Majority of risks are built in its price. At the CMP of Rs 3119, the stock is trading at annualised P/E multiple of 28.6 times with the annualised EPS of Rs 108.82, which is fairly valued.

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