TCS Q2FY23 Preview: Single-Digit Rise in Revenue, Profit
As we approach TCS’s much-anticipated Q2 2023 earnings release on October 11, market analysts are expecting a subdued performance in terms of constant currency (cc) revenue growth compared to the previous quarter. The prevailing concerns over global macroeconomic conditions have continued to impact client spending across various sectors, contributing to this anticipated softness.
In terms of rupee figures, TCS is projected to achieve a 9 percent increase in profit, amounting to Rs 11,396 crore, based on the consensus of five brokerage estimates. This represents a 3 percent uptick compared to the previous quarter. The revenue picture also shows a single-digit year-on-year growth of 9 percent, bringing it to Rs 60,293 crore, which is 1.5 percent higher than the preceding quarter.
Analysts are optimistic about the company’s EBIT margin, expecting it to expand sequentially by 55-90 basis points, potentially reaching up to 24.1 percent. This boost is attributed to currency benefits, enhanced efficiency, and the effects of previous wage hikes implemented in the previous quarter (Q1). In the previous quarter, the EBIT margin stood at 23.2 percent.
Key factors to monitor during TCS’s Q2 earnings release include the announcement of any buyback plans, insights into demand trends in the banking sector, updates on significant contract wins, and information regarding employee growth. Additionally, investors will be keen to learn about potential shifts in the firm’s strategy and priorities under the leadership of the new CEO, as well as the strategies in place to defend and expand profit margins.
Here’s a breakdown of expectations from various brokerages:
HSBC Global: Anticipates TCS to report a 1 percent cc growth, partially offsetting industry weaknesses through cost management and vendor consolidation. Yearly cc growth is expected to moderate to 5 percent for the quarter. Margins are anticipated to improve by 60 basis points due to the absence of wage hikes seen in Q1.
Kotak Institutional Equities: Forecasts marginal revenue growth, citing continued weaknesses in discretionary spending across multiple sectors. Year-on-year cc revenue growth is estimated at 3.2 percent. The forecast does not include revenues from the BSNL deal. An increase of 67 basis points in EBIT margin on a quarter-on-quarter basis is projected, primarily driven by operational efficiencies. Yearly margin decline is attributed to growth slowdown and increased costs related to travel and office expenses. TCV of deal wins, including the BSNL deal, is estimated at $12 billion, marking a 48 percent YoY growth.
JM Financial: Expecting a 1 percent cc revenue growth, with a 20 basis points cross-currency headwind translating to 0.8 percent QoQ dollar revenue growth. EBIT margin is projected to expand by 55 basis points, driven by reduced subcontracting expenses and improved utilization. The reported deal TCV is expected to be healthy, reflecting recent large deal wins.
Motilal Oswal Financial: Anticipates a significant margin recovery of 90 basis points QoQ, following wage hikes in Q1. Growth is expected to remain modest due to macroeconomic weaknesses. A 1.1 percent QoQ cc revenue growth is projected for the September quarter. The deal pipeline is expected to remain resilient, particularly in the UK regions, while the US and Europe may continue on a weaker trajectory.
Tata Consultancy Services (TCS) is a multinational company based in Mumbai, Maharashtra, India. It specializes in providing information technology services and consulting. As a subsidiary of the Tata Group, TCS has a presence in 150 locations spanning 46 countries. In July 2022, it was reported that TCS employed more than 600,000 individuals globally.
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