IT services major Tata Consultancy Services (TCS) is once again expected to report a muted quarter, in line with the predictions of several analysts. The company is all set to detail its April-June earnings after market hours today.
According to an average of the estimates by Motilal Oswal, Kotak Institutional Equities, Jefferies and ICICI Securities, the company is expected to report a revenue of Rs 59,480 crore in Q1FY24. This is supposed to be a mere 0.5 percent increase QoQ (quarter-on-quarter) but a 12.7 percent increase YoY (year-on-year).
According to a mean consensus of the above mentioned brokerage firms, TCS is also expected to register a decline in its profits. The net profit estimate for Q1FY24 is Rs 10,886 crore, which is a 4.6 percent decline quarter-on-quarter against Rs 11,436 crore reported earlier.
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The mean Earnings Before Interest Tax (EBIT) margin in Q1FY24 is forecasted to be 23.32 percent, a 91 basis points decrease sequentially but a 48 basis points increase YoY, according to the brokerage firms.
Dollar revenues for the April-June quarter are expected to be around USD 723.4 crore, a 0.5 percent growth sequentially and a 6.7 percent growth YoY.
In their previews, brokerage firms have pointed out that wage hikes and companies prioritising long-term deals due to recession fears in the North American market have impacted notably TCS and some of the other Tier-1 companies’ margins.
ICICI Securities, in its preview for the IT sector, observed ,“With the profitability for enterprises coming under pressure due to inflation, there is now heightened level of scrutiny around technology budgets with multiple discretionary projects having limited RoI (return-on-investment) visibility getting permanently cancelled or postponed.”
The brokerage firm in its reasoning for the flat revenue estimate for TCS observed, “We expect muted revenue growth for TCS at 0.5 percent QoQ in CC terms due to delay in decision-making in its two most important geographies, North America and Continental Europe, which together account for roughly 70 percent of its overall revenues.”
However, its not all pale and gloom for the tech titan. Considering a strong order book, Motilal Oswal along with other major domestic brokerages have maintained their preference for TCS. Analysts expect TCS to register strong TCV (total contract value) numbers this quarter, backed by the recent BSNL 5G deal win worth USD 1.83 billion and UK NEST deal worth USD 1 billion.
Foreign banker BNP Paribas similarly observed, “We see deal-win data as the key metric to judge the demand environment, which seems robust (in case of TCS).” It noted that in spite of a similar situation in Q4FY23, the deal pipeline for TCS had been strong with a TCV of USD 10 billion.
While maintaining preference for TCS, the financial services institution added, “Given the heightened uncertainty at Infosys, we think TCS is better positioned to benefit from the shift in customers’ focus to cost-optimisation deals and it is our sector top pick.”
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