Tata Consultancy Services Ltd (TCS) June quarter results will be out post market hours of Wednesday. Its leadership team will address the media at 5:30 PM IST and the interaction will be streamed live on TCS' website and on its YouTube channel. It will be followed by an earnings conference call at 7 PM IST, during which the TCS leadership team will discuss the financial performance and take questions -- the audio archive of the same will be available on the TCS website after two hours of completion of the call.
Analysts largely see the Tata group firm to report a 15-20 per cent year-on-year (YoY) rise in net profit on a double digit YoY rise in sales. Revenue is seen rising 0.5-0.8 per cent in dollar terms and flattish in constant currency (CC) terms. Margin is seen expanding on YoY basis, but salary hikes may weigh the print sequentially. This would be partly negated by operating efficiencies, employee pyramid rationalisation and cross-currency tailwinds. TCS may report robust deal wins, backed by BSNL 5G deal worth $1.83 billion and UK NEST deal worth $1 billion, analysts cited. Kotak Institutional Equities pegs total contract value (TCV) at $11-12 billion, up 34-46 per cent.
TCS Q1 results preview
Analysts are largely building in a slower growth for TCS in the June quarter. On an year-on-year basis, HSBC is factoring in a 20.8 per cent YoY growth in profit at Rs 11,443 crore compared with a Rs 9,470.80 crore in the same quarter last year. Revenue is seen 12.7 per cent at Rs 59,438.90 crore compared with Rs 52m750.80 crore in the year-ago quarter. It sees dollar revenue at $7,231 million, up 0.5 per cent QoQ.
"Expect TCS growth to be flat QoQ in constant currency (cc) terms as industry weakness drags growth in Q1. We see YoY CC growth moderating to 7 per cent in Q1," it said.
Phillip Capital pegs Q1 profit for TCS at Rs 10,889.50 crore, up 14.9 per cent. The brokerage sees revenue rising 13.1 per cent YoY to Rs 59,694 crore. It sees Ebit margin at 23.4 per cent against 24.5 per cent sequentially. "We expect CC revenue growth of 0.5 per cent QoQ. Modest growth on account of weakness in discretionary spending and cautious sentiment across major verticals," it said.
Emkay Global sees profit rising 17.8 per cent to Rs 11,167.70 crore and sales 13.6 per cent YoY to Rs 59,911.8 crore. Ebitda margin is seen at 25.7 per cent against 26.7 per cent in March and 25.4 per cent in the year-ago quarter.
Deal wins have been steady with key deal wins for TCS including Nest, BSNL, M&S, and JLR, said HDFC Institutional Equities.
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TCS interim dividend
While announcing its results, the TCS board may also consider interim dividend. If declared, the dividend will be paid to the equity shareholders of the company whose names appear on the register of members of the company or in the records of the depositories as beneficial owners of the shares as on July 20, which is the record date fixed for the purpose.
TCS share price targets
Emkay Global sees TCS stock at Rs 3,350. HDFC Institutional Equities finds the IT stock worth Rs 3,750. Elara Securities has a target of Rs 4,070. The average target price on the stock, as per Trendlyne, at Rs 3,458 suggests 5 per cent upside potential for the stock. TCS shares have delivered fattish return this year against Nifty IT's 7 per cent ris during the same period.
IT sector backdrop
Accenture’s August quarter guidance implied no sequential improvement, moderation in cloud growth for hyperscalars, muted total contract value (TCV) growth in Q4FY23 and declining headcount. The US-based EPAM Systems also cut its Calendar 2023 revenue growth outlook, expecting a 2 per cent decline in revenues in the constant currency terms at the mid-point of the guided band.
What to watch in TCS Q1 results?
Analysts noted eyes would be on any commentary suggesting the possibility of an uptick in H2 as H1 played out in a muted manner. Demand trends in key verticals like BFSI, Retail, Manufacturing and Communications would be watched, so would the deal intake in Q1 and deal pipeline. Investors would want to know about the pricing environment, considering macro uncertainties and deal mix shift towards cost takeouts. Hiring plan amid slowing growth and macro uncertainties would also be something investors would want to know about on Wednesday.
"We expect investor focus on leakage of revenues due to lack of back-fill of discretionary projects by clients, pipeline of cost take-out and vendor consolidation decisions of clients and win-rates, changes to strategy, key bets and priorities of the organization under new CEO, health of impacted verticals/geos, especially hi-tech, financial services and North America and possible impact from new sectors such as retail," Kotak Institutional Equities said.
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