Tata Consultancy Services (TCS), India’s largest IT services company, will on Thursday, January 11, declare its December 2023 quarter. According to analysts, the Q3 FY24 financial revenues are likely to be muted. It is because it was a slow quarter as it saw the holiday season in key markets like North America and Europe, apart from uncertainty in discretionary spending and restrained tech budget of clients.
Kotak Institutional Equities in its report said, “We expect muted overall revenue growth due to furloughs in hi-tech and financial services…We expect moderate deal wins of $8.5-9 billion. Quantum of deals announced has been muted especially in the North American market. The focus will be on the outcome of the client budgeting cycle for CY2024.”
It added that the focus will be on the outcome of the client budgeting cycle for 2024. Expectations are high about a revival in spending. We expect investor focus on—(1) the outcome of the annual client budgeting exercise, especially in the critical financial services vertical, (2) the state of spending in the impacted North America market and the financial services, hi-tech & telecom verticals, (3) pipeline of deals, (4) state of discretionary spending and what it would take to revive the same, (5) the impact of GCC ramp-up on growth of companies and (6) levers to defend and increase margins.
Another brokerage firm Sharekhan said that on a year-on-year basis, Infosys expects to report 8 per cent drop in net profit while it sees the Tata group’s TCS clocking 8.2 per cent profit growth. While both Infosys and TCS are seen reporting fall in YoY operating profit margin, Infosys’ YoY margin fall could be to the tune of 100 basis points.
Sequentially, TCS may report improved margin. In revenue terms, Infosys is seen reporting flattish sales while TCS could report 3.2 per cent rise in revenue in rupee terms, Sharekhan said.
“TCS is expected to report muted revenue growth at 0.3 per cent in CC terms due to furloughs offset by the contributions from the BSNL deal. EBIT margins are likely to improve by 25 bps QoQ, aided by operating efficiencies partially offset by muted revenue growth,” Sharekhan said.
Another brokerage Motilal Oswal in its report said, “The growth is expected to stay muted due to furloughs and weak macros. Expect 0.4 per cent QoQ CC (constant currency) growth for Q3. EBIT percentage is expected to see a marginal improvement of 20 bps QoQ due to the absence of operating leverage.”
It added that the deal pipeline is also expected to remain resilient, especially in the UK regions, while the US and Europe continue to stay on a weaker trajectory.
Nuvama expects TCS to deliver 0.5 per cent CC revenue growth and 0.1 per cent USD growth, QoQ. Growth excluding the BSNL deal may be flattish QoQ.
It added, “We expect margins to remain flat QoQ. We expect a strong deal-wins streak to continue, with a cautious commentary. Commentary on client spending and AI will be keenly sought.”
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