Target: ₹3,900

CMP: ₹3,328.85

TCS’ Q3-FY23 CC revenue growth q-o-q and margin were ahead of BNP Paribas estimates. The management sees no major change in overall tech spending and demand, with visibility on clients’ 2023 budgets still a couple of months away.

Decision making in the UK is fast, cautious in the US, but TCS sees it normalising, and constrained in Europe. TCS posted a solid total deal TCV (₹7.8 billion, book-to-bill: 1.1x) with a strong deal pipeline. Headcount dipped 0.4 per cent q-o-q, but was up 10.2 per cent y-o-y.

TCS plans to add gross 1,25,000-1,50,000 staff in FY24 with normalised attrition implying a strong 9-13 per cent headcount growth. Quarterly annualised attrition fell c6pp q-o-q and with supply-side issues easing, back-filling and retention costs reducing, TCS is confident of ending FY23 with the EBIT margin target of 25 per cent.

We expect Indian IT services firms to surprise positively with a relatively resilient demand environment and continued revenue market share gains. We see TCS and Infosys as key beneficiaries of this trend and they are our sector top picks.