Recently, TCS came out with Q3FY21 results and registered a 7.2% YoY growth in net profits. Let us do a 5- point results analysis of TCS stock in this blog.
TCS Q3FY21 Results - 5 Point Analysis
1. Revenue Highlights
- Company posted muted growth on YoY basis and healthy growth sequentially in cc terms.
- Key drivers for this strong growth are as follows:
- Growing demand for Core transformational services : TCS is a key beneficiary of higher cloud adoption and digital adoption
- Strong Revenue Conversion from earlier deals
- Moreover, TCS is a direct beneficiary of consistent market share loss of key players – Capgemini, Cognizant etc.
2. Profitability Highlights
- Company’s operating profit is increasing continuously over the past few quarters.
- This has resulted into healthy operating profit margins over the recent quarters.
- Operating profit expansion has also translated into healthy net profit margins for the company over the recent quarters.
- Along with healthy operating profit generation, company has healthy cashflow from operations to the tune of INR 11,952 crore which is 134% of its net profit.
- Key drivers for operating profit expansion are:
- Strong growth across all the verticals
- Operational benefits from Transformative operating model framework i.e. SBWS Model (Secure Borderless Workplaces Model) : 25-25 Strategy Announced by TCS.
3. Revenue Mix
- Geography Mix – As seen company derives majority (~50%) of its revenues from North America.
- Segment Mix – BFSI remains the key contributor followed by retail, life sciences & healthcare and others.
4. Client Parameters
- There were no major changes in number of clients for the company in this quarter.
- Company currently has 4,69,261 employees and there was a net addition of 15,721 employees in this quarter.
- By 2025, TCS is planning to implement 25-25-25 strategy, meaning 25% workforce will work from office and remaining will work from home.
- This will result in further expansion of profitability margins as most of the overhead costs will be saved.
- Company also has all-time low attrition in IT services of 7.6% in this quarter.
- As seen, stock is currently trading at quite premium valuations as compared to its historical PE multiples.
- Currently the stock valuations look euphoric, however the stock may rally if the rally in market continues.