TCS plunges 7% on lower-than-expected September quarter result

Shares of Tata Consultancy Services (TCS) plunged 7 per cent to Rs 3,674.55 on the BSE in Monday's intra-day trade after the company's September quarter net profit missed Street expectations. 

The IT company posted a slightly lower-than-expected, 14.1 per cent year-on-year growth in net profit and 16.8 per cent YoY rise in revenue, in the second quarter (Q2) of financial year 2021-22 (FY22). The stock of India's largest information technology (IT) services player had hit a record high of Rs 3,990 on October 8, 2021.

In Q2, TCS' net profit rose to Rs 9,624 crore, a 6.8 per cent sequential rise. Revenue, meanwhile, grew to Rs 46,867, up 3.2 per cent QoQ. The firm's top line and margin growth, both, missed Bloomberg estimates. According to a Bloomberg poll, analysts had estimated revenue of Rs 47,339 crore.

"The softness in growth was also evident in the total contract value (TCV), which came in at $7.6 billion, as against $8.1 billion in Q1, and $8.6 billion in Q2FY21. In dollar terms, revenue for the quarter came in at $6.33 billion, a growth of 3.2 per cent sequentially. The Street was expecting this to be around 4 per cent," Business Standard reported. CLICK HERE FOR FULL REPORT

The management said attrition challenge may continue for the next two to three quarters. The company hired 43,000 freshers in H1. They are being trained with emerging technologies to able to cater to the demand. They also said they are planning to increase the velocity of hiring keeping in mind the demand scenario.

"TCS reported an in-line revenue growth of 4 per cent quarter on quarter (QoQ) constant curreny (CC) in 2QFY22. However, dollar revenue growth (2.9 per cent QoQ) missed our estimate of 3.7 per cent QoQ growth. EBIT margin expanded by 10bp QoQ to 25.6 per cent, but was lower than our estimate of 26.2 per cent on supply side challenges," Motilal Oswal Financial Services said in result update.

"Yet, we remain positive on the company, given its strong growth outlook. But high valuations leave limited room for disappointment. A miss on estimates in 2QFY22, coupled with a soft margin outlook, can result in near term pressure on the stock," the brokerage firm said.

Those at ICICI Securities noted: TCS is key beneficiary of multi-year growth (15-20 per cent) in digital technologies. Increase in outsourcing in Europe, vendor consolidation and deal pipeline leading to revenue CAGR of 15.9 per cent over FY21-23E. Industry leading margins to continue and expects margins to improve 190 bps over FY21-23E. Double-digit return ratios, strong cash generation and healthy payout, are among key triggers for future price performance for the stock.