Tata Consultancy Services (TCS) is expected to report subdued earnings for the quarter ended March, but is expected to outperform peers — Infosys, HCLTech, and Wipro — on the back of the BSNL deal, reversal of furloughs, and securing other large deals. The IT major will announce its Q4 earnings on Friday after the market hours.
The average of six brokerage firms expect TCS’s revenue to rise 1.3% sequentially to Rs 61,388.65 crore in the January-March quarter. Meanwhile, net profit for the quarter is seen to increase 7.5% quarter-on-quarter to Rs 11,901.24 crore.
“TCS and HCLTech will outperform on growth at 0.2-1.7% c/c (constant currency) qoq. TCS’s revenue growth would be driven by the ramp-up of large deals, including JLR won in the recent past,” Kotak Institutional Equities said in a pre-earnings report.
In October-December, the company’s consolidated revenue grew 1.5% on quarter to Rs 60,583 crore. However, the company’s bottomline fell 2.5% sequentially to Rs 11,058 crore.
Brokerages further said India’s largest IT company’s topline growth is likely to be supported by the ramp-up of large deals such as the BSNL contract, and recovery in the manufacturing and banking, financial services, and insurance (BFSI) verticals.
Nuvama expects TCS revenue growth to be driven by a “recovery in BFSI and continued strength in manufacturing”. The BFSI vertical remains TCS’s largest business segment, contributing 37% to the company’s overall topline during the December quarter.
A consortium led by TCS had won an order worth Rs 15,000 crore from state-owned BSNL for deployment of 4G network across the country in May 2023, with TCS estimated to receive about 80% of the total order value. TCS in January had said the BSNL deal win would continue to aid the company’s revenue in the next 4-6 quarters.
Additionally, the IT company has likely secured large deals and optimised its costs, leading to improved margins, analysts said. However, the company may experience some impact on its operating margin due to wage hikes which took effect from April 1.
The earnings before interest and tax (EBIT) margin or operating margin for January-March is projected to improve to 25.3% an improvement of 30 basis points from 25% reported in the quarter ended December.
Axis Securities said cost optimisation measures and the moderation of subcontracting costs are also expected to improve TCS’s operating margin in Q4 FY24.
DEAL WINS
The company’s deal win momentum is expected to have been strong in the quarter gone by, with Axis Securities projecting deal wins in the range of $7-9 billion for the quarter. Kotak Institutional Equities estimated deal wins worth $10 billion for TCS.
“Deal wins are likely to be strongly driven by cost take out deals and aided by the $2.5 billion TCV (total contract value) Aviva deal,” Jefferies said in a report.
Analysts and brokerages are keenly watching for the management’s commentary on the demand environment for FY25, especially discretionary spending, and will also look out for updates on vertical outlooks such as BFSI, hi-tech, and manufacturing.