TCS Q3 Earnings: With IT major Tata Consultancy Services (TCS) all set to announce its fiscal third quarter earnings on Thursday (January 9), brokerage firms and analysts said that the company is expected to post muted revenue growth for the quarter on higher furloughs. However, the IT giant is expected to boost its margins by 20-40 bps due to operational efficiencies and favourable cost structures. 

According to Bloomberg, TCS is expected to report Q3 revenue at Rs 64,754 crore, posting a modest 0.8 per cent sequential growth and the net profit is estimated at Rs 12,541 crore, up 5.8 per cent QoQ. EBITDA, it added, is projected to rise by 3.7 per cent to Rs 17,351 crore. 

With Q3 being a seasonally weak quarter for the IT industry due to higher furloughs on account of Christmas and New Year holidays, the profit growth for TCS is expected to be driven by an improvement in EBIT margins on the back of rupee depreciation and better operational efficiencies. Per analysts, TCS is expected to post Q3 profit in the range of Rs 12,178.50 crore and Rs 12,653 crore. 

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The IT giant is expected to report flat constant currency (CC) revenue growth and a fall in dollar revenue growth sequentially. This would be on lower BSNL revenue contribution and a seasonal weakness on account of furloughs. Elara Capital said, “For TCS, we expect USD revenue to decline 0.8 per cent QoQ, hit by furloughs and ebbing revenue from the BSNL deal. TCS, with wage hike already given in Q1FY25, may see a margin expansion of 40bps QoQ due to deceleration in BSNL deal-related costs, which hit Q2 margins.” Per estimated by Elara Capital, TCS is expected to record Q3 revenue at Rs 63,929.20 crore, reporting a growth of 5.5 per cent. Profit for the quarter in review is estimated at Rs 12,180.30 crore, up 10.1 per cent YoY and EBIT margin is projected at 24.5 per cent. 

Meanwhile, JM Financial said, “TCS could report flat cc growth as BSNL turns into a headwind now. We expect cc revenue growth of 0 per cent with 95bps cross currency tailwind translating into -1 per cent QoQ USD rev growth. We estimate USD 60 million decline in BSNL deal; ex regional markets (where BSNL is housed), we expect +1 per cent cc QoQ. Lower revenues from low-margin BSNL deal and operational efficiency to drive 20 bps margin expansion. As per the analysis by the brokerage firm, TCS is expected to post Q3 revenue at Rs 64,138.80 crore, up 5.9 per cent YoY and profit is estimated at Rs 12,178.50 crore, marking a growth of 1.4 per cent on-year. 

Here are things to watch out for as TCS will announce its Q3 earnings report on January 9:

  • Investors and market participants will keep a watch on the interim announcement by the IT major. TCS has said that it will announce a dividend for its shareholders on January 9, on the date when the company is slated to release its fiscal third quarter earnings report. The company has already fixed the record date for dividend payment.
  • Another monitorable will be commentary on deal wins by the firm during the third quarter. Per experts, Q3 deal wins will be in the $9-10 billion range. JM Financial said that large deal TCV will be watched out for.
  • TCS Q3 results announcement will also give an update on BSNL revenue contribution, the likely trajectory and margin impact thereof. Analysts said BSNL should contribute 3 per cent to revenue growth YoY. 
  • Another key announcement awaited on January 9 will be updates on client specific challenges highlighted in Q2. Investors will keep an eye on TCS commentary on outlook on EU manufacturing and US Life sciences vertical.