IT Stock To Buy From A Long-term View

Broking firm Anand Rathi has set a higher price target on the stock of Tata Consultancy Services, post the company's results and has recommended a buy on the stock.

Numbers in line with expectations

Tata Consultancy Services Limited (TCS) reported good growth in topline in line with Anand Rathi's expectations with revenue from operation growing 15.8% YoY to Rs. 505.9 billion during 4QFY22 as against Rs. 437.1 billion in 4QFY21.

"The company recorded Constant Currency Revenue growth of 14.3% YoY. The Company recorded revenue at Rs. 1,917.5 billion for FY22, a growth of 16.8%," Anand Rathi has said.

Flat EBIT margins

According to the brokerage firm, EBITDA was placed at Rs. 138.5 billion in 4QFY22 as against Rs. 128 billion in 4QFY21.

"EBITDA Margins for 4QFY22 stood at ~27.4%. EBIT margin during the quarter were flat at 25% QoQ. During the quarter there was pressure on margins due to supply side challenges which were mitigated from operational efficiencies and currency support. The profit after tax (PAT) for 4QFY22 came in at Rs. 99.6 billion as against Rs. 92.8 billion during 4QFY21 recording a growth of 7.3% YoY. Net income margin stood at 19.7%," the brokerage has said.

Segment wise revenue

According to Anand Rathi, during the quarter growth was led by Retail and Consumer Business Segment which grew 21.1% YoY recording revenue at Rs. 8.2 billion in 4QFY22 as against Rs. 67.8 billion in 4QFY21.

"Banking, Financial Services and Insurance segment reported revenue of Rs. 195.3 billion in 4QFY22 as compared to Rs. 175.6 billion in 4QFY21, a revenue growth of ~11.2 % YoY. Life Science and Health Care segment grew by 19.7% YoY to Rs. 54.2 billion during 4QFY22 as against Rs. 45.2 billion in 4QFY21. Manufacturing segment recorded Rs. 49.5 billion in Revenue with a growth rate of 17.5% YoY. Communication, Media and Technology grew 20.4% to Rs. 84.8 billion in 4QFY22 as against Rs. 70.4 billion in 4QFY21," the brokerage has said.

North American markets sees good growth

On geographical front, among the major markets growth was led by North America which grew by 18.7%. Continental Europe grew by 10.1%, while UK grew 13%. Among the emerging markets, growth was led by Latin America which grew 20.6% and India which grew 7%. Middle East and Africa grew 7.3% and Asia Pacific grew by 5.5%.

During 4QFY22, TCS recorded highest ever order book at $11.3 billion. It includes two mega deals of ~$1 billion each. By vertical, BFSI had very strong TCV of $3.2 billion. While retail posted an order book of $4.6 billion. The TCV of deals signed in North America stood at $6.1 billion. For the full year, the order book TCV was $34.6 billion, a growth of 9.5% over the prior year.

View and valuation

On the people front, according to Anand Rathi, the company saw all-time high net additions in the quarter at 35,309 during Q4FY22 bringing the total headcount to ~592,000. During the quarter, LTM attrition was at 17.4%. However the incremental attrition has moderated.

"With continuity of robust growth across segments, we expect the growth momentum to continue in the medium term supported by strong deal pipeline and ramp up of large deals. We recommend BUY rating on the stock with a revised target price of Rs. 4,350 per share," the brokerage has said.