Aspiring for double-digit revenue growth in FY23 – TCSTanmay Gadre
Update on the Indian Equity Market:
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Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, Mr. Samir Seksaria, CFO, and Mr. N Ganapathy Subramaniam, COO & ED of Tata Consultancy Services (TCS) with CNBC TV18 on the 12th April 2022:
- The company’s deal wins of USD 11.3 bn comprise large deals and even spread deals of all sizes. The regular pipeline is strong, with the third-largest deal worth around USD 250mn. The management is focused to keep on moving up the median level of the deals.
- The company’s average quarterly deal wins used to be in the range of USD 6-7 bn, and are now between the USD 8-9 bn range. The management feels that this number will keep on increasing due to the demand visibility that it can see.
- The company believes that its employee cost is stabilizing. The attrition rate is reaching a higher level and in the next 6-8 months it will stabilize. In the last 2.5 years, the company has invested heavily in building its talent pool and upskilling it. The management believes that it will help the company in improving its operational performance to the 26-28% margins range.
- The management believes that the pricing and realization will be key levers for improving the company’s margins. The better realization will be achieved by 3 things- 1) Incremental pricing for renewals and new deals, 2) Better realization through a better portfolio mix, and 3) Improving realization per FTE (full-time equivalent employee) basis.
- The company aspires to grow its revenues with a double-digit growth rate in FY23. The management believes that the industry is still far away from the peak of the digital investment cycle. They believe that they are still in the early to mid-stage of their clients’ migration to hyper scaler space and the leveraging of native technologies.
- Speaking of its big-size deal wins, the company is looking toward cloud transformation deals as the biggest opportunity in almost every industry. The company used technologies like metaverse and augmented reality features for one of its telecom retail clients in North America so that its customers could feel the retail stores and products. All of this comes at a decent price point for the company due to the technologies that it employs
Asset Multiplier Comments
- TCS’ size and capabilities have positioned it well to benefit from the technological upcycle, cloud migration, and digital transformation that the IT industry has entered into.
- We also believe that the continued strong deal wins with a suitable portfolio mix will help the management retain its double-digit revenue growth even in FY23.
Consensus Estimate: (Source: market screener website)
- The closing price of TCS was ₹ 3,686/- as of 12-Apr-2022. It traded at 31x/28x the consensus earnings estimate of ₹ 118/134 for FY23E/FY24E respectively.
- The consensus target price of ₹ 4,041/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 134/-
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