Q3 preview: TCS likely to report single-digit growth in revenue, net profit

Large Cap IT major TCS is expected to report single-digit growth in revenue and profit for the December quarter (Q3FY24) as compared to last year due to higher furloughs and moderate deal wins, said analysts. 

Lower discretionary spending by clients and continued weakness in the BFSI and hi-tech segments will keep earnings performance subdued, they say. 

As per an average of six brokerage estimates, TCS is likely to report a net profit of Rs 11,617 crore for the quarter, up 7 per cent from a year ago. Sequentially, this could be 2.4 per cent higher. 

Revenue is expected to be around Rs 60,388 crore, up 3.7 per cent year-on-year (YoY) and 1.2 per cent from last quarter (QoQ). Check estimates table

 

Key monitorables: Street will look out for 2024 client budget and spending trends in key verticals like BFSI, retail and markets like US and Europe, margin levers, ramp up of low margin BSNL contract, deal pipeline for large sized deals, client decision making and pricing trends. 

Here’s what brokerages expect: 

Sharekhan: TCS is expected to report muted constant currency revenue growth of 0.3 per cent from the last quarter due to furloughs offset by the contributions from the BSNL deal. 

EBIT margins are likely to improve 25 bps QoQ, aided by operating efficiencies. 

Kotak Institutional Equities: It expects 0.5 per cent CC quarterly growth, accounting for $50 million contribution from the BSNL deal. 

Overall revenue growth will be muted due to furloughs in hi-tech and financial services. EBIT margin may rise 30 bps due to aggressive cost management. 

It expects moderate deal wins of $8.5-9 billion as the quantum of deals announced has been muted, especially in North America. 

Elara Capital: It expects cc revenue to fall 1 per cent from last quarter. Lower working days, slowdown in discretionary projects, esp in North America may hit growth. 

It expects BFSI vertical to be flat and growth in energy, lifesciences, and manufacturing verticals. Higher-than-usual furloughs will offset growth in Q3. 

Axis Capital: It expects 1 per cent QoQ growth in cc revenue with zero cross currency impact. 

Sees EBIT margin rising 30 bps sequentially to 24.5 p;er cent aided by cost optimisation and efficiencies despite revenue drag. 

The order bookings could be in the usual $7-9 billion range. 

Equirus Securities: It expects cc revenue to grow by 0.4 per cent QoQ, driven by commercialisation of BSNL deal in Q3. EBIT margins could improve 28 bps QoQ due to operating leverage, cost efficiencies and net currency benefits.