TCS Q3 Results: An Overview
Tata Consultancy Services (TCS), India’s largest IT services company, has reported its Q3 results, and the numbers are inline with expectations. The company’s revenue growth has been broad-based, with all industries and geographies showing improvement. Yes Securities has maintained its ‘Buy’ rating on the stock, citing a broad-based recovery in revenue growth, accelerating deal conversions, and resilient margins despite wage and investment headwinds.
The brokerage highlights TCS’s disciplined execution, strong order book, and full-service offerings as key strengths to navigate the current demand environment. In this article, we will delve into the details of TCS’s Q3 performance, the outlook for the IT sector, and the potential upside for investors.
Revenue Growth: A Broad-Based Recovery
TCS’s revenue growth has been broad-based, with all industries and geographies showing improvement. The company’s revenue from operations increased by 12.2% year-on-year (YoY) to Rs 42,815 crore. The growth was driven by a 13.4% YoY increase in revenue from digital services, which now accounts for 53.4% of the company’s total revenue.
The company’s revenue growth was also driven by a strong performance in the BFSI (Banking, Financial Services, and Insurance) segment, which grew by 14.1% YoY. The retail and consumer packaged goods (CPG) segment also showed a strong performance, growing by 12.5% YoY.
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Deal Conversions: Accelerating Growth
TCS’s deal conversions have been accelerating, with the company reporting a strong pipeline of large deals. The company’s total contract value (TCV) of new deals won during the quarter was $7.8 billion, up 25.1% YoY.
The company’s deal wins were driven by a strong performance in the digital services segment, with a TCV of $4.4 billion. The BFSI segment also showed a strong performance, with a TCV of $1.4 billion.
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Margins: Resilient Despite Wage and Investment Headwinds
TCS’s margins have been resilient despite wage and investment headwinds. The company’s operating margin was 24.5%, down 30 basis points (bps) YoY. The decline in margin was due to a 130 bps increase in employee costs, which was partially offset by a 100 bps decline in other expenses.
The company’s net profit was Rs 10,874 crore, up 10.1% YoY. The growth in net profit was driven by a strong performance in the digital services segment and a decline in other expenses.
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Outlook: Positive for the Next 12 Months
Yes Securities remains positive on TCS over the next 12 months, citing a broad-based recovery in revenue growth, accelerating deal conversions, and resilient margins despite wage and investment headwinds.
The brokerage highlights TCS’s disciplined execution, strong order book, and full-service offerings as key strengths to navigate the current demand environment. The company’s strong pipeline of large deals and its ability to win new business will drive growth in the coming quarters.
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Target Price and Potential Upside
Yes Securities has maintained its ‘Buy’ rating on TCS, with a target price of Rs 3,500. The brokerage expects the company’s revenue to grow by 12-14% in the next 12 months, driven by a strong performance in the digital services segment and a decline in other expenses.
The potential upside for investors is significant, with the company’s stock price expected to increase by 15-20% in the next 12 months. The company’s strong financial performance, combined with its disciplined execution and strong order book, make it an attractive investment opportunity for investors.
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