TCS’s Q4 results live up to expectations, but don’t excite investors

In constant currency terms, revenue increased 3.2% sequentially and Ebit margin was flat at 25% sequentially due to supply side pressures. Both these figures were in line with analysts’ expectations.

In a post-earnings conference call, the company’s management said margins were supported by improved operating efficiencies and favorable currency movements. In addition, management reported that it saw the highest ever order flow of $11.3 billion during the quarter, which included two mega deals worth $1 billion each. Excluding these mega deals, it had a total contract value of $9.5 billion which was still up about 3% year-on-year.

While TCS’ earnings met expectations on key parameters, the company’s shares were trading flat on the NSE in early trade on Tuesday. The weak response is due to some near-term margin headwinds, which investors in stocks need to be cautious of.

Analysts at Nirmal Bang Institutional Equities Ltd noted that TCS’ ebit margin at 25.3% for FY22 is below the company’s aspirational range of 26-28%, mainly on account of supply-side pressures. Also, the company’s management has indicated margin pressure due to return of travel cost along with higher employee cost in 1HFY23.

“The comments on pricing indicate that it is not such a big lever in FY23, where there has been increased competitive intensity on new deals,” the Nirmal Bang report said.

Sharing a similar view, analysts at Emkay Global Financial Services Ltd said, “Wage inflation and possible slowdown in Europe remains a concern in the near future, although TCS is set to benefit from strong demand and growing digital transformation opportunities.” is ready.