Tata Consultancy Services Ltd (TCS) reported modest revenue growth at $7363 million, up 1.1% q-o-q/2.3% y-o-y.
Revenue growth in constant currency (CC) stood at 1.1% q-o-q, missing our estimates by 0.5%. Revenue in rupee terms stood at Rs. 61,237 crore, up 1.1% q-o-q/3.5% y-oy. Revenue growth was led by strong growth across Regional markets, Manufacturing, Energy, Resources and Utilities offset by weakness in Technology & Services, Communication & Media and BFSI verticals.
EBIT margin expanded 98 bps q-o-q to 26%, beating our estimates of 25.3% aided by reduced sub-contractor costs, improved productivity and better utilization offset by headwinds from third-party costs and travel expenses. Net profit stood at Rs. 12,434 crore, up 6% q-o-q/9.1% y-o-y. The company reported a record deal to win TCV at $13.2 billion, up 63% q-o-q/32% y-o-y.
Deal wins were broad-based across industry verticals and geographies with one mega deal and other standard-size short-term deals. Book to Bill stood at 1.8x. North America TCV stood at $5.7 billion with BFSI TCV at $4.1 billion and Consumer Business TCV at $1.6 billion.
LTM Attrition rate dipped 80 bps q-o-q to 12.5%.Net headcount additions fell by 1,759 taking closing headcount to 601,546. Cash flow from operations stood at Rs. 12,480 crore was up by 5.2% y-o-y while free cash flow improved to Rs. 11,581 crore, up 4.3%.
Management commentary remains stable and believes FY25 to be better than FY24 and is witnessing green shoots and moderate growth in consumer business and pent-up demand in BFS which they believe will be a growth driver in the medium to long term.
We believe the company is well-placed to deliver better performance in FY25 given the large deal ramp-ups, robust order book aided by pent-up demand in key BFS verticals and the gradually receding macro headwinds.
View and Target Price
The company continues to report resilient performance evident from record deal wins TCV and strong expansion in margins in the quarter even though the modest revenue growth missed estimates.
The deal wins TCV was robust growing 63% q-o-q/32% y-o-y with Book to Bill at 1.8x providing revenue visibility for the quarters ahead. We expect a ~11%/15% Sales and PAT CAGR over FY24-26E. We believe the company is well-placed to deliver better performance in FY25 given the large deal ramp-ups, robust order book and aided by pent-up demand in key BFS verticals and the gradually receding macro headwinds.
Hence, we maintain a Buy on TCS with an unchanged PT of Rs. 4,750. At CMP, the stock trades at 27.4x/23.6x FY25/26E EPS.
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