IT bellwether Tata Consultancy Services (TCS) will release its June quarter scorecard on July 8 which is expected to come mixed.
Other than the earnings number, management commentary on the deal pipeline and the impact of macroeconomic headwinds will be on investors' radar.
Owing to a sharp rise in inflation and rate hikes, the risk of a recession has increased and most brokerage firms and analysts believe IT companies may see their demand scenario shrinking.
As the brokerage firm Motilal Oswal said, "Tier-1 companies should deliver revenue growth in a narrow range (2.3-3.9 percent QoQ CC). While the long-term demand environment remains unaltered, we anticipate an impact in the second half of FY23 and FY24 due to elevated inflation and an economic slowdown in both the US and Europe."
"We are trimming our FY23/FY24 INR earnings per share (EPS) by 2-5 percent, despite a positive 300-400bp impact from a lower INR (79/USD). The impact on earnings will accrue from weaker revenue growth as we continue to see support to margins from a large fresher intake and a partial price increase. The commentary on demand, the impact of an upward price revision, and a weakening macro-economic outlook on deal conversion will be key monitorable to look for," said Motilal Oswal.
Brokerage firm Kotak Securities forecast solid growth of 3.6 percent quarter-on-quarter (QoQ) in CC led by seasonal strength, gains in vendor consolidation decisions and momentum in digital transformation programs. Besides, the brokerage firm expects a sequential and year-on-year (YoY) decline in EBIT margins.
"Sequential EBIT margin decline is on account of—(1) wage revisions, on-site and offshore, (2) retention costs and (3) increase in travel costs. Tailwinds are largely in the form of modest rupee depreciation of nearly 70 bps. We expect reasonable TCV growth of 11-23 percent YoY to US$9-10 bn," said Kotak.
Kotak expects investors to focus on the impact of macro events on demand and the nature of programs that will stay and programs that will be shelved in case of recession.
"We expect investor focus on—(1) any deferral or cancellation of programs, especially in directly impacted verticals by the recent chain of events, (2) key priorities of clients in a fast-changing environment, (3) large deal momentum, especially in consolidation deals, (4) outcome from the push by companies to get rate increases, (5) attrition rate, especially onsite, (6) any change in hiring plan and (7) levers to defend margins in light of continued wage inflation and little leverage from the pricing," said Kotak.
Brokerage firm PhillipCapital (India) expects TCS' CC revenue growth of 3.7 percent QoQ (2.3 percent QoQ in USD) on strong momentum in digital transformation programmes.
"We expect growth to be broad based across verticals. Margins are expected to decline by -140bps QoQ due to wage hikes, travel costs, and supply side pressures, to be offset by USD/INR depreciation," the brokerage firm said.
Other than the numbers, the impact of macros on demand, deal TCVs (total contract values) and pipeline, margins outlook, attrition trends and pricing comments are the key monitorable, PhillipCapital said.
Another brokerage firm YES Securities expects a sequential dip in TCS' margin due to wage hike and increase in other expenses whereas the brokerage firm believes management commentary on the outlook on the growth environment would be the key thing to watch out for.
Disclaimer: The views and recommendations made above are those of the broking firms and not of MintGenie.