IT bellwether Tata Consultancy Services (TCS), whose shares have fallen 20 per cent year-to-date (YTD) and yet outperformed its IT peers by a healthy margin, will announce its September quarter results on Monday.
The Mumbai-headquartered IT major is seen reporting a single-digit rise in year-on-year (YoY) net profit on a 15-23 per cent YoY jump in net sales for the quarter. Revenue growth in constant currency (CC) terms is expected to be in 3-3.5 per cent range.
EBIT margin is seen shrinking in excess of 200 basis points on a yearly basis, even as an improvement is likely on a sequential basis. Total contract value (TCV) could be to the tune of $8-8.5 billion, analyst projections suggested.
Analysts noted that Accenture’s fourth quarter results (August-ended) were encouraging, especially in its outsourcing business, which is proxy to Indian IT companies.
Investor, they felt, may focus on the management commentary on client spends, deal momentum, attrition rate, especially onsite, and levers to defend margins in light of continued wage inflation and little leverage from pricing.
Kotak Institutional Equities expects TCS to report a 5 per cent YoY rise in net profit at Rs 10,105.20 crore compared with Rs 9,624 crore in the corresponding quarter last year. Sales is seen rising 17.3 per cent YoY to Rs 54,984 crore from Rs 46,867 crore in the year-ago quarter.
“We forecast solid sequential revenue growth of 3.1 per cent, driven by seasonal strength and growth in digital services, led by cloud. Cross-currency headwinds (540 bps YoY) will be extremely high. EBIT margin will increase from the lows of June 2022 quarter, led by absorption of wage revision rolled out in the earlier quarter. However, multiple margin headwinds do exist with high attrition and increase in travel and discretionary expenses,” it said.
Foreign brokerage Jefferies sees profit for the quarter rising 4.8 per cent YoY to Rs 10,085 crore while it expects revenues climbing 23 per cent YoY to Rs 36,410 crore. This brokerage is expecting Ebit margin to contract 319 basis points YoY to 25.6 per cent in September quarter from 20.4 per cent in the year-ago quarter.
“We expect Q2FY23 revenue growth to be robust at 3.5 per cent QoQ CC, driven by deal ramp ups and a seasonally strong quarter. We estimate Ebit margins to improve 50 bps QoQ to 23.6 per cent, driven by pyramiding, operating leverage and pricing benefit, amidst continued pickup in travel/discretionary
expenses and supply side pressures,” it said.
Emkay Global sees profit rising 9.5 per cent YoY to Rs 10,541 crore on a 17.6 per cent YoY rise in sales at Rs 55,132.40 crore. It is building in a 1.9 per cent growth in dollar revenues on a sequential basis, as it bakes in 210 basis points (bps) cross-currency headwinds.
EBIT margin is likely to expand by 90 bps QoQ, it said, led by operating efficiencies, normalisation of salary hike and rupee depreciation.
This brokerage believes demand trends in key verticals like BFSI, retail, manufacturing and communications will be keenly watched, and so would be deal intake, pricing environment and margin outlook.
Meanwhile, Motilal Oswal sees profit for the IT firm at Rs 10,410 crore, up 7.9 per cent YoY. It sees sales growing 17.5 per cent YoY at Rs 55,090 crore. Margin in September quarter should see some recovery from wage hikes that impacted June quarter margin, it said adding strong demand commentary is likely.
In constant currency (CC) terms, growth should remain strong, but reported growth will have some impact from cross-currency movements, the brokerage added.
TCS stock has fallen 20 per cent year-to-date against a 2 per cent drop in the BSE Sensex. Yet the scrip has outperformed IT peers Infosys (down 23 per cent), HCL Technologies (down 28 per cent), Wipro (down 43 per cent) and Tech Mahindra (down 43 per cent) during the same period by a wide margin.