Preview of TCS Q3 Results: Revenue Growth Is Probably Going to Be Muted at 0.4%

The biggest IT services provider in India, Tata Consultancy Services (TCS), will release its December 2023 quarter results on Thursday, January 11. Analysts predict that Q3 FY24 financial revenues would be modest. It’s because, in addition to uncertainties around discretionary spending and customers’ constrained IT budgets, the quarter was sluggish due to the Christmas season in important areas like North America and Europe.

“We expect muted overall revenue growth due to furloughs in hi-tech and financial services,” Kotak Institutional Equities said in a study.A minor contract victory of $8.5–9 billion is what we anticipate. There haven’t been as many agreements disclosed, particularly in the North American sector. The results of the client budgeting cycle for CY2024 will be the main emphasis.

It also said that the results of the client budgeting cycle for 2024 would be the main emphasis. There is a lot of hope for a spending rebound. The results of the annual client budgeting exercise, particularly in the crucial financial services vertical, the state of spending in the affected North American market and the financial services, hi-tech, and telecom verticals, the pipeline of deals, the state of discretionary spending and what would be required to revive it, the impact of the GCC ramp-up on company growth, and the levers to defend and increase margins are the areas we expect investors to be most interested in.

According to Sharekhan, a different brokerage business, Infosys anticipates reporting an 8% decrease in net profit on an annual basis, while TCS, a division of the Tata group, is expected to record an 8.2% profit gain. While the operational profit margins of TCS and Infosys are both expected to decline year over year, Infosys’ YoY margin decline may be as much as 100 basis points.

TCS could report better margin in a sequential manner. According to Sharekhan, TCS may announce a 3.2% increase in revenue in rupee terms, while Infosys is expected to report flat sales.

Furloughs are projected to outweigh the gains from the BSNL agreement, resulting in a modest revenue rise of 0.3% for TCS in CC terms. Operating efficiency would help EBIT margins expand by 25 basis points on a quarterly basis, Sharekhan said. However, limited revenue growth will also be a factor.

In a report, Motilal Oswal, another brokerage, said that “weak macros and furloughs are expected to keep the growth muted.” For Q3, anticipate a 0.4 percent QoQ increase in CC (constant currency). Because there is no operational leverage, a 20 bps QoQ increase in EBIT % is anticipated.

It also said that while the US and Europe continue to follow a softer trend, the transaction pipeline is anticipated to continue to be robust, particularly in the UK areas.

According to Nuvama, TCS will increase CC revenue by 0.5% and USD revenue by 0.1% on a quarterly basis. Growth may be flat QoQ if the BSNL purchase is excluded.

“We expect margins to remain flat QoQ,” it continued. With caution, we anticipate a robust deal-winning run to continue. We will be closely monitoring any commentary on client expenditure and AI.

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