TCS gains 1% in a weak market on strong demand outlook

Shares of Tata Consultancy Services (TCS) opened on a flat note on the BSE in Tuesday’s intra-day trade in an otherwise weak market. The information technology (IT) major reported its highest-ever order book and crossed the revenue milestone of Rs 50,000 crore in the last quarter of 2021-22 (Q4FY22). The company also logged highest incremental revenue addition of Rs 350 crore in a year.

However, the stock firmed up, and hit a high of Rs 3,737, earlier in the day it dropped to a low of Rs 3,650. As of 12:10 PM, the stock was up a per cent at Rs 3,733, on trades of around 1.77 lakh shares on the BSE. In comparison, the S&P BSE Sensex was down 0.67 per cent at 58,578.

Chart Check: TCS can hit Rs 4,500 provided it can surpass Rs 4,000 mark on good volume

TCS reported net profit of Rs 9,926 crore in Q4FY22, up 7.4 per cent year on year (YoY) and 1.6 per cent sequentially. Revenue for the quarter grew 14.3 per cent to Rs 50,591 crore in constant currency terms.

The highlight of the quarter was an all-time high order book of Rs 1,130 crore that included two large Rs 100 crore deals. Meanwhile, the order book was at Rs 3,460 crore for FY22. CLICK HERE FOR FULL REPORT

The management’s commentary on the demand environment continues to remain strong. "We are in a better place versus Q4FY21. With record high employee addition, higher visibility on Cloud-led spending over the next 2-3 years, and strong demand, we are factoring in a revenue growth of 13.9 per cent YoY in CC terms in FY23. The strong deal wins suggest a robust revenue growth outlook for FY23," the management said in a statement. 

While total contract value (TCV) for the quarter was at Rs 930 crore (adjusted for two large deals), the company indicated that steady state deal wins could be in the range of Rs 800-850 crore per quarter. "The demand outlook continues to be strong as clients continue to spend on cloud transformation programs. The supply side challenges pose a near to medium term risk as it would continue to put the pressure on EBIT margins," the management added.

Meanwhile, the management has also indicated long term aspirational margin band of 26- 28 per cent. ICICI Securities believes attrition could take longer to stabilise. "Pricing could be only savior in this case but even costs pressure on the client's side may rule out accelerated pricing in our view and it would be more gradual in nature," the brokerage firm added.

On the other hand, Motilal Oswal Financial Services remains positive on TCS' leadership position in the market, with a 'buy' rating on the stock and target price of Rs 4,240. "Given TCS’ size, capabilities, and portfolio stretch, it is rightly positioned to leverage anticipated industry growth,” the brokerage firm added.