Tata Consultancy Services Ltd. (Q2FY24 Result Analysis)

Summary

Tata Consultancy Services is the flagship company and a part of Tata group. It is an IT services, consulting and business solutions organization that has been partnering with many of the world's largest businesses in their transformation journeys for over 50 years. TCS offers a consulting-led, cognitive powered, integrated portfolio of business, technology and engineering services and solutions.

TCS's Q2FY24 Performance

• Revenue in USD terms reported 0.2% sequential de-growth and 4.8% YoY growth and reached reach US$ 7,210 mn. In cc terms, revenue reported 2.8% YoY and 0.1% growth on a QoQ basis.
• The management mentioned that the performance in 2QFY24 was driven by growth in the UK, MEA and Latin America region on a cc YoY basis which was in-turn led by cloud transformation deals as they are in high demand coupled with increased cost optimization deals.
• The company reported TCV of US$ 11.2 bn (near to life high) for 2QFY24 which grew by 38.3% on a YoY basis and by 9.8% on a QoQ basis. BFSI vertical reported the TCV of US$ 3 bn and Consumer Business (Retail and CPG vertical) reported US$ 1.4 bn. The North America region reported the TCV of US$ 4.5 bn. Bookto-Bill ratio stood at 1.6x.
• Board has also approved buyback woth 17,000 crore.

Vertical Wise Performance

• Energy, Resources and Utilities Life Sciences which grew by 14.8%.
• Healthcare which grew by 5.0% (grew by 10.1% in 1QFY24 and 14.5% in 2QFY23),
• Manufacturing vertical which grew by 5.8% (22.9% in 1QFY24 and 14.5% in 2QFY23).
• BFSI de-grew by 0.5% (grew by 3.0% in 1QFY24 and 13.1% in 2QFY23),
• Consumer Business grew by 1.0% (grew by 5.3% in 1QFY24 and 22.9% in 2QFY23),
• Technology & Services de-grew by 2.2% (grew by 4.4% in 1QFY24 and 15.9% in 2QFY23),
• Communications & Media de-grew by 2.1% (grew by 0.5% in 1QFY24 and 18.7% in 2QFY23) and
• Regional market & Others grew by 14.3% (16.9% in 1QFY24 and 13.1% in 2QFY23).

Geographi Wise Performance

• United Kingdom led with 10.7% growth (16.1% in 1QFY24 and 14.8% in 2QFY23);
• North America grew by 0.1% (4.6% in 1QFY24 and 17.6% in 2QFY23) and
• Continental Europe grew by 1.3% (3.4% in 1QFY24 and 14.1% in 2QFY23).
• In emerging markets, Middle East and Africa grew by 15.9% (15.2% in 1QFY24 and 8.2% in 2QFY23), India grew by 3.9% (14.0% in 1QFY24 and 16.7% in 2QFY23), Latin America grew by 13.1% (13.5% in 1QFY24 and 19.0% in 2QFY23) and Asia Pacific grew by 4.1% (4.7% in 1QFY24 and 8.2% in 2QFY23). 

Other Highlights

The company reported an expansion in EBIT margin in 2QFY24 (24.3%; margin in 2QFY24). FY24 margin trajectory should be positive. The management highlighted that there were tailwinds such as utilisation, pyramid optimisation and low sub-con  and less discretionary expense (35 bps positive impact on margin). The management reiterated that they aspire to reach 26-28% margin band in the long-term.

Attrition stands at 14.9%, which has gone down sequentially.

The company reported TCV of US$ 11.2 bn (near to life high) for 2QFY24 which grew by 38.3% on a YoY basis and by 9.8% on a QoQ basis. BFSI vertical reported the TCV of US$ 3 bn and Consumer Business (Retail and CPG vertical) reported US$ 1.4 bn. The North America region reported the TCV of US$ 4.5 bn. Bookto-Bill ratio stood at 1.6x.

Financial Performance of Q2FY24

Concall Highlights

• Clients want to invest; technology adoption is high; cost optimisation is high; projects which are designed are getting executed and revenue is coming as per the plan.
• TCV stood at US$ 11.2 bn; North America TCV at US$ 4.5 bn; BFSI TCV at US$ 3 bn, Consumer Business TCV at US$ 1.4 bn. Book-to-Bill ratio stands at 1.6x. BFSI TCV is strong. TCS announced 2 mega deals (JLR and BSNL).
• BSNL: Is a significant deal; to be completed in 12-18 months.
• Transformation deals are very strong. Won 1 large transformation deals; Won 1 large deal with leading media company. 
• AI.Cloud, TCS Interactive and IOT & Digital Engineering led the growth amongst service lines.
• Cost optimisation is the major theme from clients.
• Data and AI/ML is at the forefront of the technology trends with customers accelerating adoption of existing AI models to drive large scale transformative business outcomes.
• Clients are focusing on uplifting Security Controls, Security Operations transformation, Automation enabled threat detection and Cloud Security.
• Not sure about when the pick-up in discretionary spending will come.
• IT industry growth has moderated; this moderation will continue as clients are trying to conserve cash; once the uncertainty is out, the growth will come back; there is fluctuation in global economic situation.
• Different signs of economic recovery are seen.
• Digital Interactive services continued to see strong growth.

Management

Shareholding Pattern

Financial Parameters

Profit and Loss

Balance Sheet

Cash Flow

Margin Profile

Valuation Profile