TCS to announce Q1 results tomorrow; here’s what to expect

IT major Tata Consultancy Services (TCS) on July 8 may report double-digit growth in revenue and net profit on a year-on-year basis for the quarter ended June 30. However, the topline and bottom line may increase in single-digit on a quarter-on-quarter (QoQ) basis. The company may also witness a sequential dip in margin due to wage hikes and an increase in other expenses.

An assessment by YES Securities showed that TCS may post 17.1 per cent and 11.1 per cent YoY growth in revenue in Q1FY23. On the other hand, it projected that revenue and profit after tax may increase by 5.1 per cent and 0.9 per cent on QoQ basis.

“Management commentary on outlook on growth environment would be a key thing to watch out for,” YES Securities said in a report. Shares of TCS traded 1.09 per cent up at Rs 3,296 at around 9.35 am (IST) on July 7 while the benchmark equity index BSE Sensex was up 0.69 per cent at 54,124 at around the same time.

On a year-to-date basis, shares of TCS have declined nearly 13 per cent till July 6. On the other hand, the 30-share Sensex pack slipped nearly 8 per cent during the same period.

Brokerage ICICI Securities said revenue of TCS may grow 16.1 per cent YoY and 4.2 per cent on a QoQ basis. However, adjusted net profit may see a growth of 10.3 per cent YoY and 0.1 per cent QoQ. It further highlighted that the EBITDA margin may decline 199 basis points on a YoY basis and 147 basis points on a QoQ basis.

While sharing its view on the IT sector, ICICI Securities said, “We re-iterate our underweight stance on India IT sector as we see peak revenue growth momentum behind us, and deal and hiring momentum will likely soften. We believe deployment in the sector should be very slow and gradual as there would be many unknown risks ahead that might further degrade valuations. With regards to these trends of IT spends, we suggest investors stick with bellwether stocks of the sector like TCS and Infosys.”

Another brokerage Prabhudas Lilladher expects healthy revenue growth of 4 per cent QoQ CC given the ramp-up of strong order book won in the earlier quarter.

“We expected lower growth of 2 per cent QoQ in dollar terms due to cross-currency headwinds of 200 basis points. We expect 90-100 basis points QoQ decline in EBIT margin due to wage hikes, higher retention costs and increase in travel costs,” it added.

Market watchers advised investors to focus on whether there is any change in nature of demand, for example, more cost focus, due to weak macro environment, presence of large and mega in deal pipeline, hiring, attrition and onsite wage inflation trends and its impact on margins ahead.