TCS - Tepid Q2; Is Peak Of ‘Compressed Transformation’ Behind Us: Nirmal Bang's Take
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Nirmal Bang Report
Tata Consultancy Services Ltd. delivered 4% QoQ constant currency revenue growth (our estimate: 4.5%) and Ebit margin of 25.6% (60 basis points below estimate) in Q2 FY22.
Profit after tax was supported by a higher-than-expected forex gain.
Significantly higher-than-expected cross currency headwind led to 2.9% QoQ growth in U.S. dollar terms.
Talent costs, cross currency impact and investments seem to have eaten into the anticipated margin increase.
Total contract value was optically down ~12% YoY but was up 25% adjusted for one mega deal.
With mega deals largely missing for the industry in the last two to three quarters, this situation could play out for Infosys too after a great FY21 on lumpy deals like Daimler and Vanguard.
Despite Q2 FY22 miss and a likely muted H2 FY22, TCS will deliver close to mid-teens growth in FY22, post which we think growth could slow to very low double-digit in FY22-FY24.
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