Tata Consultancy Services (TCS): Posts Strong Q2 FY2023 Driven by High Demand Across All Verticals

Tata Consultancy Services Ltd. (NSE: TCS) reported robust financial results for Q2 FY2023 (ended September 30, 2022). In anticipation of strong results, investors seem positive about the company, reflecting around a 2% rise in shares at today’s close, prior to the earnings release. 

India’s largest IT services company also declared an interim dividend of Rs 8 per share. The record date stands at October 18, with the payment date on November 7. 

Revenues Up 18%, Profit Crosses Rs 10,000 Crore 

TCS recorded revenues of Rs 55,309 crore, up 18% YoY riding on broad-based growth in all verticals. Revenues grew 15.4% YoY in constant currency terms. 

Net profit attributable to shareholders stood at Rs 10,431 crore, up 8.4% on a YoY basis. Additionally, earnings per share (EPS) were Rs 28.51, up from Rs 26.02 in the prior-year quarter. 

On a segment basis, growth was experienced in all segments. Banking Financial Services and Insurance, Manufacturing, Retail and Consumer Business, Communications, Media and Technology, and Life Sciences & Healthcare verticals grew 14%, 14%, 23%, 21%, and 21%, respectively. 

Among major markets, North America, Continental Europe, the UK, India, and Latin America recorded double-digit growth. Also, single-digit growth was reflected in the Middle, East & Africa, and the Asia Pacific regions. 

Services at TCS were also in high demand in the quarter. Demand for the company’s services was driven by Cloud, Enterprise Application Services, and Cyber Security. 

Margin & Expenses 

Total expenses stood at Rs 42,178 crore, up 20% YoY. The company depicted strong margins with net and operating margins at 18.9% and 24%, respectively, in Q2 FY2023. 

Other Metrics 

As of September 30, 2022, TCS’ workforce came in at 616,171, reflecting a net addition of 9,840 during the September quarter.  

On the last twelve months basis, IT services attrition was 21.5%. As a result, with expectations of wages to normalize across the industry, TCS anticipates attrition to reduce in the second half of the year. 

Balance Sheet Position 

As of September 30, 2022, total assets stood at Rs 1,48,173 crore compared to Rs 1,41,514 crore as of March 31, 2022. Cash and cash equivalents were Rs 5,834 crore, down 53% from the prior quarter. Operating cash flow came in at Rs 20,458 crore. 

Management Comments 

Commenting on the strong quarterly results, Rajesh Gopinathan, Chief Executive Officer and Managing Director of TCS said “Demand for our services continues to be very strong. We registered strong, profitable growth across all our industry verticals and in all our major markets. Our order book is holding up well, with a healthy mix of growth and transformation initiatives, cloud migration and outsourcing engagements.” 

Our Viewpoint 

In the current era of digitization, TCS’ strong quarterly performance driven by high demand for its services depicts long-term growth prospects. The company seems overvalued at current levels compared to its peers. Still, high returns, the company’s dividend policy, and robust financials can be important factors for prudent investment decisions by investors.