TCS Results Today: Analysts expect subdued numbers; here are key things to watch out for

IT giant Tata Consultancy Services (TCS) will kickstart the March quarter (Q4FY23) earnings season today on April 12, 2023. The Q4 results for the IT major are likely to be subdued as the recent US and European banking crisis delayed tech spending decisions for major clients. It is also a seasonally weak quarter for the IT sector.

Despite the headwinds, brokerages see the company report double-digit year-on-year (YoY) growth for both its net profit and revenue in the March quarter. The EBIT margin for the IT major is expected to come in at 25 percent as compared to 24.5 percent in the December quarter due to lower attrition and operational efficiency. Meanwhile, deal wins are projected to be strong in a broad range of $7-10 billion.

Q3 Earnings: In the December quarter, the IT major posted a 10.98 percent increase in its consolidated net profit at ₹10,883 crore versus ₹9,806 crore in the year-ago period. Its consolidated revenue from operations came in at ₹58,229 crore, up 19.11 percent against ₹48,885 crore in the corresponding quarter of the previous fiscal. In constant currency terms, the revenue rose 13.5 percent year-on-year (YoY) led by North America & UK, said the IT major. Its operating margin came in at 24.5 percent - down 0.5 percent YoY, whereas the net margin stood at 18.6 percent.

Here's what top brokerages expect:

Motilal Oswal: The brokerage expects a 17 percent jump in TCS' net profit at ₹11,600 crore in the March quarter. Meanwhile, on a sequential basis, the PAT is likely to rise 7 percent. Its consolidated revenue is likely to advance 17 percent YoY and 1.7 percent QoQ to ₹59,200 crore, meanwhile, its revenue in US dollar terms is expected to be 1.8 percent QoQ to $7.2 bn. In constant currency (CC) terms, revenue growth is likely to be at 0.9 percent QoQ, implying a 90 bps of currency tailwind, said the brokerage. MOSL expects a 30 bps improvement in operating margin, led by stabilizing supply and receding attrition. The deal pipeline should remain resilient. Client budgets, outlook on BFSI and deal wins are key monitorables, it said.

ICICI Securities: The brokerage expects TCS to be a major beneficiary of vendor consolidation and clients’ focus on cost optimisation. Post recent cuts in revenue estimates it sees TCS reporting 6.2 percent YoY CC growth in FY23E with double-digit revenue growth in both FY25E/FY26E. It expects a muted revenue growth for TCS in the March quarter at 0.1 percent QoQ in CC terms due to delay in decision-making in its two most important geographies, North America and Continental Europe, which together account for roughly 70 percent of its overall revenues. Its dollar revenue in the March quarter is expected to jump 7.3 percent YoY and 1.5 percent QoQ to $7.1 bn.

IDBI Capital: The brokerage expects a 5 percent QoQ and 14.7 percent YoY growth in its net profit at ₹11,388 crore. Its consolidated revenue, as per the brokerage, is seen rising 1.9 percent QoQ and 17.3 percent YoY to ₹59,355 crore while dollar revenue is estimated at $7.2 bn, up 2 percent QoQ and 7.8 percent YoY. It forecasts QoQ revenue growth of 1 percent in CC terms and a cross-currency tailwind of 98 bps. Easing of supply-side challenges to aid margin expansion. it forecasts a 73 bps improvement in margins to 25.3 percent.

Kotak Institutional Equities: As per the brokerage, the company’s exposure to impacted banking clients will not materially impact its revenue growth in the quarter. TCS has a 29 percent exposure to banking and financial services, it informed. TCS is expected to report 2.1 percent QoQ revenue growth in rupee terms in Q4 while net profit is expected to increase 6.2 percent QoQ, it said. "Growth will likely be led by spending on cloud and digital programs, cost takeouts and wallet share/vendor consolidation gains. Exposure to impacted banking clients will not materially impact revenue growth in the quarter, in our view," Kotak Institutional Equities said, adding that TCS is expected to be a beneficiary of a higher focus of enterprises on cost take-outs and core modernization.

Antique Broking: The brokerage expects a 14.5 percent YoY and 4.8 percent QoQ jump in the IT major's net profit at ₹10,846 crore. Meanwhile, its sales are likely to advance 17 percent YoY and 1.8 percent QoQ to ₹59,263 crore.

Key things to watch out for:

1) Commentary on clients' tech budgets; 2) strategy of new CEO; 3) TCV of deal wins; 4) timeline of deal closures and deal pipeline; 5) hiring & offshoring, 6) outlook on EBIT margin and its sustainability; 7) commentary on long term digital trends; 8) commentary on Europe; 9) Impact on verticals due to macro situation (BFSI in particular); 10) attrition trend; 11) FY24 growth & margin outlook and 12) Strategic direction for the company under the new CEO.