Tata Consultancy Services Ltd (TCS) would kickstart the IT Q4 earnings season on Friday and all eyes would be on deal wins; commentary on key verticals; pricing scenario amid weak discretionary spends; attrition and hirings; and quarterly earnings. For the quarter, the largest IT firm is seen outperforming peers in terms of top and bottom lines, partly aided by the BSNL deal. Margin expansion would be the second-only to Tech Mahindra, some estimates suggest.
Deal wins
The quarter saw TCS bagging deals from Aviva (TCS BaNCS), Europ Assistance (TCS AI platform ignio AIOps), Modernize Enento Group (Digital Transformation), UK based Co-Operative Group (Cloud first strategy), Nuuday (Cloud transformation), US-based ‘Central Bank (core modernisation) and Ramboll (Modernise and streamline IT operating model). Net-net deal wins are likely at $8-10 billion for the quarter.
"TCV for 3QFY24 was $8.1 billion after strong TCV of $10 billion-plus in the three quarters before 3QFY24 and this had remained in the guided range of $7-9bn. We believe TCV for 4QFY24 should come in the guided range," Nirmal Bang said.
Except for the Aviva relationship extension, there have not been any mega-deal deal announcements during the quarter that are over $1bn TCV. Nirmal Bang believes the Ramboll deal is a net new TCV, but it is likely sub-US$1 billion TCV.
Commentary on key verticals
Commentary around BFSI, Retail, Telecom and Technology will be keenly watched as TCS has the highest exposure in the Tier-1 set with deep relationships in both US as well as Europe and it has been indicating weakness in these verticals. That said, TCS called out for green shoots in the BFSI segment in the March quarter analyst interaction.
Hiring plans, GenAI partnerships
BNP Paribas, which sees 1.3 per cent sequential dollar revenue growth on reversal of furloughs and incremental contribution from BSNL deal, said it look for look for medium-term industry demand trends and impact of macro headwinds on demand. Commentary on the US and Europe markets and client budgets, deal wins and deal pipeline; revenue growth and margin outlook for FY25; hiring plans; investments in
Discretionary spends
For now, Nomura India does not see a firm recovery in discretionary demand and said growth recovery in the March quarter and FY25 in the IT sector should be led primarily by cost-takeout projects. For TCS, it commentary on cost takeout projects, banking vertical and outlook on client CY24 discretionary spend.
Profit, revenue & margin
As per Nuvama estimates, TCS is likely to beat most of its tier I peers in terms of top and bottom lines. Nuvama is anticipating a 1 per cent quarter-on-quarter (QoQ) revenue growth for TCS in constant currency (CC) terms, which is likely to be higher than a 0.7 per cent expected fall in CC sales for Infosys, 0.5 per cent drop for Wipro, a 0.3 per cent rise for HCL Technologies, a 1.4 per cent drop for Tech Mahindra and 0.9 per cent decline for LTI Mindtree.
In dollar terms, TCS sales are seen rising 1.4 per cent sequentially against a 0.7 per cent growth for HCL Tech and declines of 0.5 per cent for Infosys, 0.1 per cent for Wipro, 1 per cent for Tech Mahindra and 0.8 per cent for LTIMindtree.
Add to that TCS margins are likely at 25.2 per cent, up 23 basis points QoQ. Infosys may report 27 bps drop in margin at 20.2 per cent. Wipro's margin are expected to remain flattish at 14.8 per cent, HCL Tech's may decline 186 bps to 17.9 per cent and LTIMindtree's may slide 42 basis points. Only TechM is seen reporting higher expansion in margin than TCS at 198 bps.
In terms of profitability, Motilal Oswal said: "While TechM should report a strong QoQ PAT improvement due to weak Q3 profitability, its YoY performance will still be down 31 per cent. Similarly, Wipro's PAT should decline 4.2 per cent YoY. TCS and HCL Tech are likely to lead the PAT growth with 8.1 per cent YoY and 6.9 per cent YoY due to robust business mix."