TCS Q1 Earnings: Second wave hits India biz, Milestone hiring. What to do with the stock now?

India’s largest IT services company Tata Consultancy Services (TCS) kickstarted the earnings season with Q1 earnings and it missed the street estimates as the second wave slowed down the Indian business while record hiring kept margins under pressure with rising salaries. Here are 5 metrics of the Q1 earnings -: 

• TCS dollar revenue growth a 2.8% vs street estimates of 3.4% growth 
• India business revenue dropped 14% due to the second wave 
• Attrition up 140 bps at 8.6%, Crossed 500,000 headcount with 20,409 hires in Q1. 
• Margins down 140 bps due to salary hikes and higher spends. 
• Mgmt Speak: : Discretionary expenses are now beginning to increase and that these are expected to normalise to pre-pandemic levels by end-FY22 which may pose headwinds to margins.

TCS stock is up 8% from lows in May has underperformed peer Infosys that has given over a 15% return to the shareholders. Here is what brokerages are saying about the stock going ahead -: 

• CLSA: Earnings below estimate but wage hike and margin hit on expected lines. Keeps an Outperform rating and an Rs 3,770 target price.
• Morgan Stanley: Despite a headline miss in revenues, we view underlying business momentum as very strong and continue to expect solid revenue growth in F22. Maintain Overweight with a price target of Rs 3,870.00