TCS Q4 show trumps D-Street expectations: 5 takeaways from the earnings

The growth was driven by a strong rise in India revenue (up 37.9%), a revival in the UK business (up 6.2%), and the regional markets vertical (up 9.7%).

Here are key takeaways from

1) Bottomline beat, but topline falls marginally short
Ahead of the results, analysts were pricing in a 5-6% YoY profit growth during the fourth quarter. However, the Mumbai-headquartered company posted 9% profit growth in the bottomline, while the top line rose by just over 3%.

In constant currency terms, revenue growth stood at 2.2% in the reporting period.

2) Strong operating margins
The IT services company reported an operating margin expansion of 150 basis points to 26% during Q4, which was completely out of the blue.

"I think what has really transpired has been the margin performance. So, I think nobody on the Street was of the opinion that margins will be at 26 odd percent," said Mayuresh Joshi of Marketsmith India.

3) Record deals
The company's order book for FY24 was at an all-time high of $42.7 billion and record $13.2 billion in the fourth quarter, led by the mega deal with Aviva and others in the emerging markets vertical.

Analysts said the deal with Aviva will continue to yield better utilization levels and margin accretive growth going forward until the first half of FY25.

"The order book has seen consistent growth to record levels which sets TCS apart and we will continue to see if this benefits growth trajectory," said Dhruv Mudaraddi, Research Analyst, Stoxbox.

4) Dwindling attrition and wage hikes
TCS has reported reducing attrition at 12.5% at the end of the March quarter. In line with every year policy, the company also announced wage hikes for its employees, with top performers receiving double-digit increments.

"The reduced attrition, enthusiastic response to our campus hiring, increased customer visits, and employees returning to the office have resulted in great vibrancy in our delivery centres and elevated morale of our associates," said Milind Lakkad, Chief HR Officer.

5) Optimistic demand Outlook
Since the IT spending budgets have been finalized by the end of March, analysts expect an uptick in deal acquisitions and project ramp-ups starting from the first quarter of FY25, thus reinforcing the optimistic outlook.

"I think it might take a couple of quarters as discretionary spending patterns come back on track and as that happens the second half of this year will be significantly better for BFSI as a whole, which complements the kind of growth that you have probably seen in energy," says Mayuresh Joshi.

Analysts believe even though the valuations are on the higher side, with these numbers, the stock should get re-rated.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)