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TCS Q2 Result preview: Profit may jump by 7.9% on-year; board may declare second interim dividend

Tata Consultancy Services (TCS) is expected to report single-digit rise in net profit in 6.7-7.9 per cent range on-year for the July-September quarter, aided by a 15-23 per cent on-year jump in net sales.

TCS Q2 Result preview: Profit may jump by 7.9% on-year; board may declare second interim dividend
In the October 10 meeting, the TCS board of directors will also consider declaration of a second interim dividend to the equity shareholders. (Pic PTI)

Tata Consultancy Services (TCS) is expected to report single-digit rise in net profit in 6.7-7.9 per cent range on-year for the July-September quarter, aided by a 15-23 per cent on-year jump in net sales. The company’s revenue growth in constant currency (CC) terms is expected to be in 3-3.5 per cent range, according to analysts. The IT bellwether will announce its Q2FY23 quarter results later on Monday. Growth will be led by strong spending on digital competencies by clients and the translation of total contract value (TCV) into revenues, analysts said. The Mumbai-headquartered IT major, whose shares have fallen around 20 per cent so far this year, is expected to report shrinking EBIT margin. “Certain segments of the market should exhibit weakness, including the mortgage segment within financial services, and non-essential retailer,” Kotak Securities said.

Attrition rate, EBIT margin outlook, rupee depreciation benefit deal wins to watch for

Hiring is expected to slow down, and attrition rates are likely to have peaked out, and for TCV, deal wins may be muted, the brokerage noted. Slowdown in growth rates is expected with amplified weakness in H2FY23. Cross-currency headwinds for the quarter stand at 63-220 bps on-quarter. Rupee depreciation should act as a margin tailwind, the analysts added. Margin headwinds including high cost to backfill attrition, increase in travel and back-to-office costs, among others, are likely to persist. These headwinds, however, will be absorbed on a sequential basis through an increase in utilization, rupee depreciation and cost control.

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Brokerage firm Axis Securities expects TCS’ operating margins to remain flat owing to higher supply-side constraints, wage hikes offset by currency tailwinds, and better volume growth. “Key attributes to watch out for are Deal TCV/pipeline, Pricing scenario, and Outlook on growth/margins/DSO days,” it said. Among key things to watch out for will be attrition rate, EBIT margin outlook, rupee depreciation benefit, and deal wins.

Board may declare second interim dividend

In the October 10 meeting, the TCS board of directors will also consider declaration of a second interim dividend to the equity shareholders. “The second interim dividend, if declared, shall 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 Tuesday, 18 October 2022, which is the Record Date fixed for this purpose,” the company said in a regulatory filing.

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Result Estimates (in percentage terms on-year):

Axis Securities
Revenues: Rs 468670 million, 17.8%
EBITDA margin: 29.3%
PAT: Rs 96240 million, 6.7%

Motilal Oswal
Revenue: Rs 469000 million, 17.5%
EBIT Margin: 25.6%
Adjusted PAT: Rs 97000 million, 7.9%

Reliance Securities
EBIT Margin: 23.7%
Revenue: Rs 548885 million, 17.1%
Net Income: Rs 102644 million, 6.7%

BNP Paribas
Revenue: Rs 551361 million, 17.6%
EBIT Margin: 23.5%
Net Income: Rs 103815 million, 7.87%

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First published on: 10-10-2022 at 10:53 IST