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HDFC Securities Institutional Equities
Tata Consultancy Services Ltd. delivered a soft quarter, impacted by weakness in North America geography (more than 1% impact on overall revenue estimated) on higher exposure in the banking, financial services and insurance vertical and the ensuing headwinds.
Margins were flat sequentially but are expected to improve as growth revives (post Q1) and the cost of delivery normalises. Positive markers for the company include-
relative improvement in continental Europe geography (15% of revenue) with strong bookings in the $50 million plus total contract value;
continued momentum in UK geography (16% of revenue) posting 5% QoQ constant currency, which is likely to continue with increased thrust on vendor consolidation (scale leadership), cost optimisation and automation;
global leadership in hyperscaler partnership (116,000 cloud certifications up 90% YoY), which will support recovery in growth and transformation deals over the medium term; and
scope for cost optimisation (cost of delivery still 200 basis points higher than pre-Covid).
Chief Executive Officer transition timelines moving earlier as well as pent-up elements from deal deferrals can provide a positive catalyst for H2 FY24E.
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