TCS Q4 Preview: Revenue may rise up to 18% YoY; EBIT margin seen at 25%

Brokerages expect TCS deal wins to be strong in a broad range of $7-10 billion in Q4, while hiring is likely to be muted

IT giant Tata Consultancy Services (TCS) will kickstart the March quarter (Q4FY23) earnings season on Wednesday, April 12. The company is expected to report soft revenue growth (in constant currency/cc terms) over the preceding quarter due to seasonal weakness and delayed decision making by clients in the US and Europe amid a downbeat macro environment. 

As per an average of 6 brokerage estimates, the company may post revenue of Rs 59,506 crore, up 17-18 per cent over last year (YoY), while its profit too could rise by as much as 18 per cent to an average of Rs 11,554 crore. SEE ESTIMATES TABLE
 

 

Most brokerages peg the company’s EBIT margin at 25 per cent for the March quarter versus 24.5 per cent in the December quarter. This improvement, they say, is likely to have been led by operational efficiency and lower attrition.  

Deal wins are projected to be strong in a broad range of $7-10 billion. 

Meanwhile, hiring is expected to be muted in Q4. Analysts at B&K Securities estimate total headcount for TCS at over 40,000 for FY23 over 100,000 in FY22. 

Key monitorables: Investors will look out for cues on demand outlook and pockets of weakness in verticals/geographies. Commentary on exposure to regional banks, impact on BFSI vertical, nature/tenure of deals, sales/deal cycles, pricing, vendor consolidation and attrition will be closely tracked. The focus will also remain on the strategic direction for the company under the new CEO. 

Here's what top brokerages expect: 
 

Jefferies: The brokerage expects TCS’ revenue growth to moderate to 1 per cent quarter on quarter (QoQ) in cc terms (versus 3 per cent growth last year) due to delay in revenue conversion and sales cycles. Ebit margin is expected to expand by 50 bps QoQ driven by higher utilisation and currency tailwinds. It expects deal bookings to remain in the $7- 9 billion with slowdown in deal making offset by large cost-takeout deals. 

PhillipCapital: It projects QoQ cc revenue growth of 1 per cent and 2 per cent in dollar terms. Margins expansion will be led by easing of supply side pressures, subcontracting rationalisation, utilisation and offshoring. 

HDFC Institutional Research: The brokerages expects TCS’ deal bookings to trend higher with expected total contract value of above $8.5 bn supported by Phoenix, Telefonica, Bombardier deals. 

Kotak Institutional Equities: Analysts at the brokerage say that the company’s exposure to impacted banking clients will not materially impact its revenue growth in the quarter. They estimate strong deal wins of over $10 bn for the quarter assuming normal renewal component. Growth will be supported by spending on cloud and digital programs, cost take-outs and wallet share/vendor consolidation gains. 

Sharekhan: Strong growth across digital service and cloud will lead to 1.1 per cent QoQ revenue growth in CC terms with a likely 110 bps cross currency tailwind, which will result in dollar revenue growth of 2.2 per cent QoQ.