TCS shares to fall on Thursday post Q1 results? History suggests so. What analysts say

Tata Consultancy Services (TCS) Q1 results on Wednesday could not bring surprises. The quarterly numbers were largely in line with Street estimates. If one were to go by history, the TCS stock may fall on Thursday morning.

Data compiled by SAMCO Securities suggest that out of 12 instances, TCS shares have fallen nine times following the quarterly results in the next session (TCS generally announces results post market hours).  Over the next week, the stock returns remained negative in seven of the 12 instances, SAMCO Securities suggested.

In the March quarter, TCS shares had fallen 1.6 per cent in the next session (post results) and were down 4.2 per cent for the week. TCS shares have fallen in the next session after results in the five straight quarters.TCS shares were in fact down 4.2 per cent in the week post Q4FY23 results. They were down 0.2 per cent post Q2FY23 results and 8.3 per cent post Q1FY23 results.

"TCS reported in-line revenue of $7.2 billion in 1QFY24, flat QoQ in constant currency (CC) and a tad below our estimate of 0.3 per cent CC. Revenue growth was affected by broad-based demand weakness across key verticals (BFSI) and geographies (US). The management indicated that a demand slowdown due to macro concerns is leading to reprioritisation of deals, which is resulting in pauses and deferrals in non-critical projects. While the deal pipeline and deal wins (Q1 deal TCV of $10.2 billion book-to-bill at 1.4 times) are good, smaller discretionary projects are getting impacted," said Motilal Oswal Securities.

TCS remains cautious about near-term demand amid adverse macros, while it is quite optimistic about the secular long-term trend, the brokerage said while keeping its 'Buy' rating intact on the stock.

Earlier today, the IT firm reported a 16.83 per cent year-on-year (YoY) rise in net profit at Rs 11,074 crore for the June quarter compared with Rs 9,478 crore in the same quarter last year. The profit growth figure came largely in-line with analyst estimates of 15-20 per cent.

Revenue for the quarter came in at Rs 59,381 crore, up 12.55 YoY over Rs 52,758 crore in the same quarter last year. Revenue growth in constant currency terms grew 7 per cent YoY, TCS said.

TCS said its Ebit margin for the quarter came in at 23.1 per cent, up 10 basis points YoY. That said margin contracted 130 basis points sequentially due to salary hikes during the quarter. Deal wins for the quarter at $10.20 billion was also in-line with analysts' forecast of $10-11 billion.

TCS' quarterly numbers met Street estimates in the backdrop of muted expectations. "Considering the overall dull environment of the IT sector led by a cut in the discretionary spending in the US and the UK, we are positively surprised with TCS reporting a 12.6 per cent YoY growth in its revenue in rupee terms and 7 per cent in constant currency terms. This was led by robust growth in its Life Sciences & Healthcare and Manufacturing verticals which clocked in a growth of 10.1 per cent and 9.4 per cent, respectively," said Dhruv Mudaraddi, Research Analyst, Stoxbox.

"On the  margin front, as per our expectations the wage hike effect led to a margin contraction of 132 bps on a sequential basis. The profitability and no significant deterioration in verticals has surprised us on the upside, especially against the backdrop of events unfolding globally. Going forward, we expect the management to work further on the operational efficiencies and view these mixed numbers with a positive bias for the IT industry," Mudaraddi said.