TCS Q2 Results Review – Operational Recovery: HDFC Securities

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Tata Consultancy Services Ltd. posted higher sequential revenue growth (in line in U.S. dollar terms) and better margins in Q2 FY23. TCS’ resilience stood out in delivering a similar growth print as it did same time last year (identical QoQ/YoY constanct currency), when the macro environment was less challenging.

Some forward looking indicators are reassuring such as deal bookings ($8.1 billion total contract value versus $8.2 billion in Q1) and continuity in fresher onboarding (35,000 hired in H1 of the more than 40,000 planned for FY23E).

Importantly, the recent drag on the margin reversed and the margin trajectory is expected to improve further (even in a decelerating revenue scenario), supported by levers such as-

1. subcontracting,

2. improvement in retention (outlook of attrition decline ahead),

3. pricing, and

4. efficiency.

While TCS’ book to bill at 1.18 times is lower than Accenture’s 1.4 times (only second time in past thirteen quarters), we reckon the deal duration is magnifying the differential as TCS had only one $400 million plus large deal.

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