TCS Rating: hold- A robust third quarter for the company

TCS reported a robust quarter with 4.1% q-o-q cc growth vs 2.5% consensus expectations. A surprise was the 40bp margin expansion q-o-q to 26.6% Ebit margin, despite a wage hike in the quarter. Mgmt is confident in the demand environment and affirmed double-digit growth in FY22e. It does not believe there was any budget flush in Q3, and, hence, thinks the strength seen in Q3 should continue in Q4. We were already expecting 12% growth in FY22e, but the Q3 beat makes us raise our growth estimate to c14%. We expect a return to 8-9% growth in FY23e/24e.

In our view, pandemic-led needs have resulted in an improved outlook for Indian IT over the next 3-4 years, as most customers have accelerated modernising plans.