Q4 results preview: Will TCS beat Infosys, HCL, Wipro, LTIMindtree in key growth parameters?

Despite weak macros, Tata Consultancy Services has delivered solid order wins in the last few quarters and if one goes by analysts, it may top most tier I peers such as Infosys Ltd, Wipro Ltd, HCL Technologies Ltd, Tech Mahindra Ltd (TechM) and LTIMindtree Ltd in terms of growth and margin in the March quarter, thanks to ramp-up of deals.

Typically, Q4 is impacted by lower billing days and BOB Capital Markets says a reversal of furloughs has been slower this time. To recall, Infosys had in its recent quarterly update cut its financial year guidance to 1.5-2 per cent from 1-2.5 per cent earlier and HCL Tech to 5-5.5 per cent from 5-6 per cent earlier). TCS should lead within the Tier-I IT companies, BOB Capital Markets said.

"Infosys and Wipro should see flat revenues, while TCS is expected to outperform others with 2.2 per cent QoQ CC, driven by the scaling up of the BSNL business. Meanwhile, LTIMindtree /HCL/TECHM should grow 1.4 per cent/0.9 per cent/0.7 per cent CC QoQ. Overall, Tier-I companies are expected to exhibit weak median revenue growth (0.8 per cent QoQ CC)," said Motilal Oswal Securities.

Nuvama expects 1 per cent sequential revenue growth for TCS in constant currency (CC) terms. This was be against a 0.7 per cent fall in CC sales for Infosys, 0.5 per cent drop for Wipro, a 0.3 per cent rise for HCL Tech, a 1.4 per cent decline for Tech Mahindra and 0.9 per cent fall for LTI Mindtree.

In dollar terms, revenue for TCS is seen growing 1.4 per cent sequentially against 0.7 per cent rise for HCL Tech and falls of 0.5 per cent for Infosys, 0.1 per cent for Wipro, 1 per cent for TechM and 0.8 per cent for LTIMindtree, Nuvama said.

In terms of margins, TCS' are likely at 25.2 per cent, up 23 basis points sequentially. Infosys, which came out with wage hikes in December quarter, is seen reporting 27 bps fall in margin at 20.2 per cent. Wipro's margin are expected o stay flat at 14.8 per cent, HCL Tech's may slide 186 bps to 17.9 per cent and LTIMindtree's by 42 basis points. Only TechM is seen reporting higher expansion in margin 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."

InCred Equities said Tier- I IT services companies should report an average constant currency (CC) revenue growth of 0.1 per cent QoQ in 4QFY24F, driven by reversal of furloughs in the banking & financial services (FSI) as well as hi-tech & manufacturing verticals offset by continued softness in discretionary spending.

Reported growth, in dollar terms. Infosys, Tech Mahindra and LTIM revenues could decline sequentially, Wipro’s IT services revenue growth could be flat QoQ while TCS' growth could be aided by ramp-up of deals, it said

Net-net, marketmen are largely anticipating the largest software exporter to clock a modest 5-6 per cent year-on-year (YoY) rise in net profit on a 3-4 per cent rise in sales. They see Ebit margin expanding 30-50 basis points on a sequential basis. An incremental contribution from the BSNL deal may lead growth outperformance, analysts said as they expect total contract value (TCV) to be at $10 billion.