Tata Consultancy Services (NS:TCS) reported flat quarter-on-quarter constant currency revenue growth on Thursday, missing Bloomberg consensus and estimates. The stagnation comes despite securing significant deals, including a sizable $1 billion+ agreement with BSNL. Analysts suggest that a reassessment of technology expenditures by clients, driven by low returns on investment, has impeded the firm's revenue growth. This is reflected in the company's recent revenue growth figures, which show a decline of 10.77% according to InvestingPro Data.
TCS remains confident in its future prospects. The company does not anticipate that project completion will impact its H2-FY24 revenue growth, though it acknowledges uncertainty surrounding the timing of demand recovery amid ongoing macroeconomic concerns. This optimism is supported by InvestingPro Tips, which suggests that TCS yields a high return on invested capital and has consistently increased its earnings per share.
In an encouraging sign for the company's financial health, TCS's EBIT margin expanded despite the slow revenue growth. The company attributes this positive trend to several factors, including cost-optimisation projects, reduced subcontracting expenses, and improved utilization rates. This aligns with InvestingPro's data, which shows a gross profit margin of 57.01%.
Meanwhile, IHS Markit (INFO) is expected to lead the industry's recovery due to its involvement in mega deals, positioning it as a top pick among analysts.
BNP Paribas (OTC:BNPQY) has set a target price for TCS at ₹4,080 with a current market price of ₹3,542.25 and a book-to-bill ratio of 1.55x. This is somewhat in line with InvestingPro's fair value of $2.64 USD. There are downside risks to this discounted cash flow terminal price (DCF-TP). These include a potential global economic decline, increased competition affecting margins, demand moderation, and sustained appreciation of the Indian Rupee against the US Dollar.
For more insights, investors can visit the InvestingPro platform, which offers a wealth of real-time metrics and tips, such as the two mentioned above, along with 16 additional tips specifically for TCS. These are part of a comprehensive suite of insights offered by InvestingPro to help investors make informed decisions.
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