Margins at a 5-year high; deal TCV of $9.2 bn augurs well for growth; FY22-23e EPS up 1-2%; TP revised to Rs 3,740; Buy retained
TCS margins expanded 20bps q-o-q to 26.8% its highest in 22 quarters despite a sharp 20% q-o-q rise in subcontracting costs and employee additions of 19,388 (highest ever) during Q4.
TCS’ Q4FY21 results were slightly ahead of estimates with revenues up 4.2% q-o-q, margins up 20bps q-o-q and recurring profits up 6% q-o-q. Growth was broad-based, led by BFSI. The key highlight of the result was TCS deal TCV of $9.2 bn, its highest, which indicates improved growth visibility. Mgmt comments on growth outlook were encouraging. We raise our FY22-23 estimates by 1-2% and maintain Buy with a revised PT of `3,740 based on 32x FY23e EPS.