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HDFC Securities Institutional Equities
Tata Consultancy Services Ltd. delivered revenue beat and in-line operating performance in Q3 FY23. Revenue growth of 2.9% QoQ (1.2% estimate) was driven by a disproportionate rise in regional market and others segment (more than 40% of incremental sequential growth), based on growth in product and Asia Pacific business.
Markers for growth deceleration (normalisation) for TCS include soft deal bookings, decline in headcount (also due to bench optimisation), and lower pipeline to bookings conversion in continental Europe (~15% of revenue).
Plans of headcount addition for FY24E (125,000-150,000 gross including more than 40,000 freshers) and reversion to pre-Covid attrition also point to growth moderating in a linear framework.
TCS growth will be driven by-
increased vendor consolidation and cost optimisation deals (reflecting in bookings from UK geo such as BT deal) supported by TCS' full-stack portfolio;
growth in the qualified deal pipeline reflecting commitment towards long-term tech programs and on realisation improvement;
bookings trajectory in the banking, financial services and insurance vertical (8% QoQ in BFSI total contract value versus 8% decline in TCV ex-BFSI); and
manufacturing vertical delivering better-than-anticipated (and non-extended) furlough in Q4.
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