CMP: Rs3936 | Target Price: Rs3700
■ TCS Q2 operating performance missed expectations, reporting lower-than-expected revenue and EBITM. Revenue grew 4.2%/15.5% QoQ/YoY in CC terms. EBITM expanded by ~10bps QoQ to 25.6% due to headwinds from supply-side inflation and currency.
■ Revenue growth was broad-based and all verticals posted double-digit CC growth YoY. Growth was led by Manufacturing (21.7% CC YoY), Life Sciences & Healthcare (19%), Retail & CPG (18.4%), and BFSI (17%). All geographies, except for Asia Pacific, posted double-digit growth YoY.
■ Strong and sustained demand environment, broad-based growth, healthy deal intake (USD15.7bn in H1), and traction in cloud, enterprise application services, analytics and IoT give management confidence of sustaining a robust revenue growth trajectory.
■ We cut our FY22/23/24 EPS estimates by 1.2%/0.3%/0.3% after factoring in the Q2 performance miss. The operating performance miss for the second consecutive quarter and rich valuations will weigh on stock performance. Maintain Hold with a TP of Rs3,700 (28x Sep'23E EPS).