TCS Quarterly Earnings

Summary

TCS Q4FY23 & FY23 Earnings Highlights

Q4FY23 Performance Highlights

• The company has ended a quarter with lower than expected performance, revenue grew by just 0.6% QoQ and 10.7% YoY in cc terms. Given a fact, this muted growth was driven by slowdown in North America market.
• EBITM of 24.5% in Q4FY23 was flat QoQ.
• Vertical wise Q4FY23 performance: BFSI (up 9.1% YoY in cc), Retail & CPG (up 13.0% YoY in cc), Life Sciences & Healthcare (up 12.3% YoY in cc), Manufacturing (up 9.1% YoY in cc), Technology & Services (up 9.2% YoY in cc), Regional market & Others (up 14.6% YoY in cc) and Communications & Media (up 5.3% YoY in cc).]
• Geographic wise Q4FY23 performance UK and Latin America led the growth in 4QFY23 (up 17.0%/15.1 on YoY cc terms, respectively, led by healthy deal momentum), Continental Europe (up 8.4% YoY in cc), MEA (up 11.3% YoY in cc), APAC (up 7.5% YoY in cc) and India (up 13.4% YoY in cc).
• The company reported TCV of US$ 10 bn for 4QFY23 which de-grew by 11.5% on YoY basis and grew by 28.2% on QoQ basis. BFSI vertical reported the TCV of US$ 3.1 bn Retail & CPG vertical reported US$ 1.3. North America region reported the TCV of US$ 5.0 bn.
• Attrition moved down to 20% during quarter, down by 120bps QoQ.
• Strong Cash conversion: Operating Cash Flow 104.1% of Net Incom
• Net Addition: 821 employees

FY23 Performance Highlights

• Revenue grew by 13.7% YoY cc and USD/INR revenue grew by 8.6/17.6% YoY.
• EBITM dip sharply 120bps to 24.1% against 25.3% reported in the previous year.
• The company reported total TCV of US$ 34.1 (versus US$ 34.6 bn in FY22) which was down by 1.4% on YoY basis.
• During FY23 as a whole FY the company has delivered double digit cc growth across all verticals. BFSI (up 11.8% YoY in cc; US$ 8,853 mn), Retail & CPG (up 19.7% YoY in cc; US$ 4,412 mn) etc.
• Geographic Wise - among major markets, North America grew 15.3%, UK grew 15% and Continental Europe grew 11%. In emerging markets, Latin America grew 17.3%, India grew 14.6%, Middle East & Africa grew 7.8% while Asia Pacific grew 7.6%.

Employee Metrics

• Net Addition: 22,600 employees
• Employee Headcount: 614,795
• Diversity: 150 nationalities; 35.7% women
• IT Services Attrition (LTM): 20.1%

Concall Highlights

Management Commentries

Geographic Side - According to management, demand looks continue to strong and hence, maintaining the range of TCV between $7-$9bn for FY24 but conversion into revenue is seems to be challenging in the near term as the enterprises are seemed to be cautious on spending and delaying the same but there is no tech budget cut by the large enterprises

·         Vertical Side - The management commentary continues to remain positive on the prime verticals and expects strong growth led by solid deal wins in its core verticals. The pipeline build-up and deal closure activity were robust during the quarter, lending good revenue visibility. 

Growth Highlights

• TCS had a strong FY23 with revenue growth of 17.6% in rupee terms and 13.7% in constant currency terms.
• Q4 revenue growth was 16.9% in rupee terms and 10.7% in constant currency.
• TCS has a strong order book with an all-time high number of large deals.
• Growth drivers for overall revenue may be more led by Europe than the US in the next two quarters.

Product Launch Highlights

• TCS has expanded its decade-long partnership with SAS as they continue to transform their business under SAS-FORWARD initiative until 2028. TCS will work with SAS to continue simplifying the landscape by adopting cloud native services and enabling faster time to market. TCS will leverage its industryleading practices to drive a culture of empowered teams and continuous innovation, helping deliver superior customer experience.
• TCS launched a new commercial fraud solution for banks and other financial services firms and designed a solution with an interactive UI and automated workflows that make it easier for the bank's credit card business to create and launch new products in the market.

Service Highlights

Services: In a challenging environment, clients carefully calibrated spends, prioritizing cost optimization, vendor consolidation and automation initiatives. In-flight technology transformation initiatives continued to be funded but with the expectation of earlier and higher RoI. Growth was led by Cloud, Cyber Security, Enterprise Application Services, and Cognitive Business Operations.

Clients and Deal Sizes (TCV)

TCS added 2 more clients in the $100 million+ band, bringing the total to 60; 30 more clients in the $50 million+ band, bringing the total to 133; 23 more clients in the $20 million+ band, bringing the total to 291; 22 more clients in the $10 million+ band, bringing the total to 461; 27 more clients in the $5 million+ band, totaling 665 and 59 more clients in the $1 million+ band bringing the total to 1,241.

Financial Performance

Full year performance - FY23

Q4FY23 Performance

Valuation

TCS's results in terms of sales and profit were lower than anticipated. In percentage terms, revenue increased by only 0.6% QoQ and 10.7% YoY, and during Q4FY23, the margin was 24.5%. As a result, we think the BFSI vertical may have a tepid performance in the near term as a result of the slowdown in the North American region and the political unrest in the US and EU. However, the management maintained a steadfastly bullish attitude regarding the general demand climate and deal closures, which showed no signs of a slowdown in the same. Due to a decrease in attrition and sub-cost, the company's margin has begun to rise over the last two quarters and will continue to do so. In my opinion, the new CEO will bring his or her experience to the table and continue to foster greater growth in the years to come. However, short-term problems may cause some problems with how much money businesses spend on technology, but long-term IT spending is still strong, and TCS concluded the year with solid double-digit growth despite numerous hurdles. The stock presently trades at 28x EPS for the FY25E.