TCS Result Analysis FY20-21 Q1

TCS Result Analysis FY20-21 Q1

CMP: 2,222 (As on 10-07-2020 Closing Price) 

Results are weaker than expected revenue and margin performance; deal wins, commentary positive

  

Total income from operations 38,322 Cr  

38,172 Cr (0.39%)  YoY | 39,946 Cr (-4.02%) QoQ  

  

Year ending revenue: 156,949 Cr Vs. 146,463 Cr (7.11%) 

 

Net Profit of 7,049 Cr  

8,153 Cr (-13.57%) YoY 8,093 Cr (-12.93%) QoQ  

  

Year ending Net profit: 32,447 Cr Vs. 31,472 Cr (3.01%) 

 

EPS (in Rs.) 18.68 

21.67 YoY | 21.45 QoQ  

  

Year ending EPS: 86.19 Vs. 83.93 

 

View: Result is below expectation. YoY and QoQ revenue declined and profit also declined. Operating profit also corrected in this quarter as compare to YoY and QoQ.  

 

Business Updates & Highlights: 

 

Operating profit fell 9.7% to Rs 9,432 crore. Margin narrowed to 23.6% from 25.1%. Net margin at 18.3%.  

 

Dollar revenue fell 7% to $5,060 million. 

 

Company is primarily operating into four segment viz. BFSI – 39.8%, Mfg –10.1%, Retail & consumer – 15.4%, Communication – 16.9% and Other – 17.6% 

 

YoY topline growth for BFSI – 2%, Mfg – (3.8%), Retail & consumer – (22.6%), Communication – 0.21% and Other – 3.9%. 

YoY bottom line growth for BFSI – (0.4%), Mfg – (7.8%), Retail – (22.6%), Communication – 3.1% and others – 27.6%. 

 

Markets: Demand contraction was broad-based by geography. Other than Europe (+2.7%) and Latin America (+0.2%), growth declined in all other markets: North America (-6.1%), UK (-8.5%), India (- 27.6%), Asia Pacific (-3.2%), and MEA (-11.7%). 

 

Life Sciences & Healthcare continued to grow strongly at 13.8% YoY. 

 

Q1FY21 Total Contract Value: $6.9 Bn 

 

Consolidated headcount: 443,676 as of June 30, 2020.  

 

Board of Directors of the Company at its meeting held on July 09, 2020, inter alia, have declared an Interim Dividend of Rs. 5 per Equity Share of Rs. 1 each of the Company Record date is 17th July 2020 and Payment date is 31st July 2020.  

 

Financial 

ROE and ROCE is around 37% and 48% respectively and book value per share is around INR 225 and share is currently trading at 9.8x of its book value. Company is currently trading at annualized PE of around 30 which is high as per Industry benchmark. Promoter holding is around 72% in the company which is very strong and stable. FIIs mutual fund and Insurance cos hold around 15.7%, 2.7% and 5.4% in the company. Cash and cash equivalent from operating activities as of June 2020 is around INR 9,290 Cr.   

 

Share View: Share price high 2,304 (52 week) and now 2,200. Share strong support price is INR 2,090/2002. Long term investor should continue with the company. Short term outlook is bearish. Tata Consultancy Services is an IT services, consulting and business solutions organization that has been partnering with many of the world's largest businesses In their transformation journeys for over 50 years. TCS offers a consulting-led, cognitive powered, integrated portfolio of business, technology and engineering services and solutions. This is delivered through its unique Location Independent Agile delivery model, recognized as a benchmark of excellence in software development. 

 

Opportunities: As per the company recent report “company believe that by 2025, only 25% of their associates will need to work out of our facilities at any point of time; and every associate will be able to realize their potential without spending more than 25% of their time in a TCS office. This can lead to potential big saving like infrastructure cost eg. Rent, overheads, electricity, cabs and admin cost etc. In this quarter this is already visible other cost INR 2,722 Vs. 3,393 Cr in YoY Vs. 3,451 Cr in QoQ therefore saving by 19.7% in YoY and 21.1% in QoQ. After an initial period of disruption, customers have now stabilized their operations and are now embarking on new beginnings to adapt and thrive in a post-pandemic world. Aegon UK has selected TCS as the strategic partner to provide end-to-end digital solutions by leveraging new-age technologies and newer ways of working for an extended duration of 3 years. TCS continues to be the global industry benchmark in talent retention, with the IT Services attrition rate (LTM) at 11.1%. 

 

Risk: As the pandemic gripped the rest of the world, software outsourcers also lost billings as they generate most of their business overseas and the bulk of it comes from clients in financial services, manufacturing and communications sectors. Due to global pandemic Clients are also likely to cut back spending as the pandemic will force companies to prioritise critical technologies over initiatives aimed at tech transformation—something that had been driving growth recently for Indian IT firms, according to Gartner. Worldwide IT spending is expected to decline 8% over last year to $3.4 trillion in 2020, it had predicted in May. Company has contingent liabilities in the tune of INR 3.2K Cr (approx.) towards legal claim against the company and matter is pending in the court.  

 

Summary:

* EBIT margin down 150 bps QoQ at 23.6%, its lowest level in 12 quarters since 1QFY18, as weak revenue and investments.

* New deal wins of US$ 6.9 billion were fairly healthy, up 21.1% YoY, an encouraging sign

* Vertical-wise performance was varied, with BFSI (-4.9% YoY CC), retail (-12.9%), COMM (-3.6%), MFG (-7.1%) and TECH (-4%) all facing pressure; only Life Sciences & Healthcare (+13.8%YoY CC) saw robust growth, aided by increasing demand from clients due to the COVID-19 pandemic

* Management commentary in the press release alludes to a bottom having been hit, with clients stabilizing their operations and embarking on new beginnings to survive in post COVID-19 world. Front-end transformation is a key area of investment, with applications, cloud and cyber security major themes for growth

* The deal wins are an early encouraging sign for growth in future quarters, even as we await management commentary regarding pace of execution

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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