TCS Q3 Review - Puts Up Optimistic Front; Implies Belief In Soft Landing In U.S.: Nirmal Bang

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Nirmal Bang Report

Tata Consultancy Services Ltd. management held out a more optimistic view on demand in the foreseeable future compared to our expectation (though in line with consensus) after delivering a slightly better than-expected performance in Q3 FY23 (more on the revenue front and less on the margin front).

2.2% constant currency QoQ growth was higher than our estimate of 1% and indicated that furlough situation was normal. Ebit margin came in 50 basis points lower than our estimate, largely driven by lower gross margin - third-party software and equipment and higher compensation expense being the main drivers in our view.

Commentary on demand in the U.S. seemed unusually robust considering the weakening macro seen there. In the UK, TCS seems to be gaining market share despite a not-so-great macro. Europe was indicated to be a weak spot.

While within verticals, mortgage, hitech, certain parts of retail remain continuing areas of concern, the travel and hospitality sub-vertical seems to be doing very well.

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More Research Reports On TCS Q3 FY23 Earnings Preview

• Revenue Growth Remains Strong As Margins Improve: Centrum Broking

• Steady Performance In Seasonally Weak Quarter: ICICI Direct

• Inline; Concerns Regarding Near Term Demand Environment: Yes Securities

• Growth Normalisation Ahead: HDFC Securities

• Good Growth, Deal Wins To Drive Performance: Motilal Oswal

• In A Sweet Spot To Maneuver Macros: IDBI Capital

• Mixed Results; Rising Near Term Uncertainty: Dolat Capital

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