Revenue, profit seen rising in single-digits; buyback eyed

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IT major TCS is expected to post muted constant currency (cc) revenue growth on a quarter-on-quarter basis for the September quarter (Q2) on Wednesday, October 11, 2023. 


The softness is expected due to the persistent global macroeconomic worries, which continued to weigh on client discretionary spending across all verticals, analysts said. 

In rupee terms, TCS could see a 9 per cent profit growth from last year to Rs 11,396 crore, as per a compilation of five brokerage estimates. On a QoQ basis, this could be 3 per cent higher. SEE TABLE


Revenue too may see a single-digit YoY growth of 9 per cent to Rs 60,293 crore, while this could be 1.5 per cent higher from the last quarter. 


Brokerages see the EBIT margin of the company expanding sequentially by 55-90 basis points to up to 24.1 per cent on the back of currency benefits, better efficiency and wage hikes already done in the previous quarter (Q1). In Q1, the EBIT margin stood at 23.2 per cent. 


Key monitorables: Investors will closely watch out for the buyback announcement, commentary on demand and banking vertical, large deal wins, and employee addition. Any cues for changes in strategy and priorities of the firm under the new CEO, expected levers to defend and increase margins. 




Here’s what brokerages expect: 


HSBC Global: Expect TCS to report a 1 per cent cc growth as industry weakness is being partially offset by cost takeout and vendor consolidation activity. We see yearly cc growth moderating to 5 per cent for the quarter. While margins will improve by 60 bps with absence of wage hikes previously done in Q1. 

Kotak Instiutional Equities: We forecast marginal revenue growth due to persisting weakness in discretionary spends across several verticals. CC revenue growth would moderate to 3.2 per cent on a YoY basis. We do not forecast any revenues from the BSNL deal. We see a 67 bps rise in EBIT margin QoQ primarily aided by operating efficiencies.

Yearly margin decline will largely be due to the slowdown in growth and increase in travel and other back-tooffice costs. We forecast TCV of deals wins, including BSNL deal, at $12 billion, a YoY growth of 48 per cent. TCS has not disclosed TCV from BSNL deal but this could be worth around $1.8 billion. 


JM Financial: We expect cc revenue growth of 1 per cent with a 20 bps cross currency headwinds translating into 0.8 per cent QoQ dollar revenue growth. Expect 55 bps expansion in EBIT margin led by lower sub-contracting expenses and better utilisation. We expect reported deal TCV to be healthy as indicated by a few large deal wins recently. 


Motilal Oswal Financial: TCS should see meaningful margin recovery of 90 bps QoQ post wage hikes in Q1. The growth is expected to stay muted due to weak macro. Expect 1.1 per cent QoQ cc growth for the Sept quarter. The deal pipeline should remain resilient, especially in the UK regions, while the US and Europe continue to stay on a weaker trajectory.  

 


Nomura: We expect cc growth of 0.5 per cent QoQ and EBIT margins to expand 100 bps QoQ. The brokerage, though, has maintained its reduce rating on the stock. 

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