“I would say it is fairly mixed. The miss is probably more to do with margins because of the skew of the BSNL deal in the quarter, but this is also going to be a tailwind in the subsequent year,” says Apurva Prasad, HDFC Securities.
Of course, it has been a weak quarter for TCS, but do you think that the fact that the management commentary indicating that the demand environment is still cautious is a bit of a worrying factor as to what the coming quarters could hold for TCS?
Apurva Prasad: So, it is more of a mixed quarter, I would say, because there are a set of positive markers, so be it the BFSI piece that is accelerating or some of the transitory factors that impacted in Q2 moderation or be it commentary on the deal pipeline, as well as parts of discretionary spend opening up and of course, the pent up spend on tech modernisation and some of the markers put out on generative AI, which is POCs doubling versus the previous quarter. So, I would say it is fairly mixed. The miss is probably more to do with margins because of the skew of the BSNL deal in the quarter, but this is also going to be a tailwind in the subsequent year.Do you sense that this could very much be the commentary from the rest of the IT pack too? I mean, demand remains uncertain, mega deals are a miss and attrition continues to be a problem.
Apurva Prasad: I would say there are pockets of improvement which you may see other companies also echoing. So, be it parts of BFSI that seems to be looking up. Then there are some of the factors which are more supply side driven with attrition, for example, that being under control, so there is that much room to improve margins. Apart from that, I think the incremental weakness is probably landing in manufacturing vertical, which is what the company stated. So, yes, that could sort of also be echoed by some of the companies.
What is your outlook then in terms of how one should position themselves in the stock? Do you believe that any sharp correction would be a good opportunity to add on to TCS?
Apurva Prasad: Oh yes, we think so. If I look at valuations, probably among the only tier I which is at a discount on FY27 basis, if I look at valuation discount to its five-year average for the earnings growth potential, the durability of the business, we have an add rating on this. We have not tweaked our estimates much. But yes, there could certainly be an opportunity to add.
Of course, it has been a weak quarter for TCS, but do you think that the fact that the management commentary indicating that the demand environment is still cautious is a bit of a worrying factor as to what the coming quarters could hold for TCS?
Apurva Prasad: So, it is more of a mixed quarter, I would say, because there are a set of positive markers, so be it the BFSI piece that is accelerating or some of the transitory factors that impacted in Q2 moderation or be it commentary on the deal pipeline, as well as parts of discretionary spend opening up and of course, the pent up spend on tech modernisation and some of the markers put out on generative AI, which is POCs doubling versus the previous quarter. So, I would say it is fairly mixed. The miss is probably more to do with margins because of the skew of the BSNL deal in the quarter, but this is also going to be a tailwind in the subsequent year.Do you sense that this could very much be the commentary from the rest of the IT pack too? I mean, demand remains uncertain, mega deals are a miss and attrition continues to be a problem.
Apurva Prasad: I would say there are pockets of improvement which you may see other companies also echoing. So, be it parts of BFSI that seems to be looking up. Then there are some of the factors which are more supply side driven with attrition, for example, that being under control, so there is that much room to improve margins. Apart from that, I think the incremental weakness is probably landing in manufacturing vertical, which is what the company stated. So, yes, that could sort of also be echoed by some of the companies.
What is your outlook then in terms of how one should position themselves in the stock? Do you believe that any sharp correction would be a good opportunity to add on to TCS?
Apurva Prasad: Oh yes, we think so. If I look at valuations, probably among the only tier I which is at a discount on FY27 basis, if I look at valuation discount to its five-year average for the earnings growth potential, the durability of the business, we have an add rating on this. We have not tweaked our estimates much. But yes, there could certainly be an opportunity to add.
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