Shares of TCS climbed nearly 1 per cent in Monday’s trade ahead of the IT firm’s September quarter results scheduled for later in the day. The Mumbai-headquartered IT major is seen reporting a single-digit rise in year-on-year (YoY) bottom line on a 15-23 per cent YoY jump in top line for the quarter. Top line growth in constant currency (CC) terms is expected to be in 3-3.5 per cent range.
EBIT margin is seen contracting 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, analysts said.
The scrip rose 0.88 per cent to hit a high of Rs 3092 on BSE.
Here are 5 things investors would be watching in TCS’ quarterly numbers.
Deal wins
Kotak Institutional Equities expects moderate growth in TCV YoY. It sees deal wins in the range of US$8-8.5 billion.
Nirmal Bang Institutional Equities noted tha TCS’ total contract value (TCV) for June quarter at $8.2 billion included two large deals. It believes the deal wins will likely be flat in the September quarter.
“Unless we see a good spike in order inflow in the next few quarters, we believe that total order inflow for FY23 will at best be flat YoY and very likely be lower. This could pose a challenge to the current consensus revenue growth expectation of high single-digit rate in FY24,” Nirmal Bang said.
Margin recovery
Investors would keenly follow data on a likely rise in margins sequentially. Kotak Institutional Equities said 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.
Emkay Global expects EBIT margin to expand 90 bps QoQ, led by operating efficiencies, normalisation of salary hike and rupee depreciation.
Cross-currency headwinds
Analysts noted that the benefit of a sharp depreciation in rupee will be partly offset by dollar appreciating against other currencies such as euro, pound and Australian dollar, resulting in higher-than-normal cross currency impact, much like June quarter. It would hurt dollar revenues.
Sharekhan said a likely 220 basis points cross currency impact to result in lower reported dollar revenue growth of 0.9 per cent QoQ. Emkay Global is building in a 1.9 per cent growth in dollar revenues for TCS on a sequential basis, as it bakes in 210 basis points (bps) cross-currency headwinds.
On YoY basis, Kotak said cross-currency headwind will be extremely high at 540 basis points YoY.
Demand outlook
Edelweiss is expecting optimistic commentary by the management and an update on client spending for CY23 in uncertain macro environment.
“Will particularly be interested in the management commentary on H2FY23 considering that it has a larger exposure to the UK and Continental Europe in the Tier-1 set. European BFSI customer related commentary would be interesting to watch considering the stress that market believes they are in through their Credit Default Swaps (CDS),” Nirmal Bang said.
Hiring/attrition
Nirmal Bang expects hiring slowdown is expected to continue. Attrition is expected to remain elevated in the September quarter, it said, adding that net hiring number will also serve as a harbinger of any growth slowdown.