TCS Q4 results, dividend announcement on April 12; earnings preview & more

Tata Consultancy Services Ltd, the largest domestic IT firm, would be disclosing its March quarter (Q4) results on April 12. The board of the IT major would recommend a final dividend, if any, for FY24. If one goes by what analysts said, TCS will likely lead the revenue growth among tier 1 IT names, thanks to BSNL deal ramp up. They see TCS Q4 profit jumping 5-6 per cent year-on-year (YoY) on a 3-4 per cent rise in sales. Ebit margin is seen expanding 30-50 basis points on a sequential basis.

Incremental contribution from the BSNL deal may lead growth outperformance, they said while expecting total contract value (TCV) at $10 billion.

Investors would wish to see any commentary on IT budgets and recovery in discretionary spending. They would want to know demand trends in key verticals like BFSI, Retail, Hi Tech, Manufacturing, and Communications; the impact of BSNL deal and its implications on margin, and pricing environment. 

JM Financial expects TCS to report 5.3 per cent year-on-year (YoY) rise in net profit at Rs 11,991.90 crore against Rs 11,392 crore in the same quarter last year. It sees revenue rising 3.5 per cent YoY (1.1 per cent QoQ) to Rs 61,240 crore from Rs 59,162 crore. It sees dollar revenue rising 1.3 per cent sequentially to $7,737 million. Sales growth in constant currency terms is seen at 1 per cent.

"Expect 20 bps expansion in EBIT margin to 25.2 per cent, due to better utilisation and lower sub-contract expenses, offsetting lower margins from BSNL deal. We have built $100 million-plus contribution from BSNL," JM Financial said.

Emkay Global sees profit rising 5.6 per cent YoY to Rs 12,035 and sales 4.1 per cent YoY to Rs 61,580 crore.

"We build-in a 1.9 per cent QoQ dollar revenue growth after factoring 40 bps cross-currency tailwinds. We are building an incremental 1 per cent QoQ contribution ($70 million) from the BSNL deal. Adjusted EBIT margin is likely to expand by 10 bps QoQ on the back of operating efficiencies, partly negated by the BSNL deal," it said.

Kotak expects reasonable margin improvement at TCS. This brokerage said TCS should lead larger peers on growth.

"We expect $10 billion-plus of deal wins, aided by a mega-deal and plenty of large deals. The renewal component in deals will be higher, in our view. The focus will be on TCS’ ability to leverage its strengths in 'Run' spends and outperform on revenue growth in FY2025E. TCS also has won quite a few mega deals that can contribute to 2.5 per cent growth in FY2025E," Kotak said.

It expects investor to focus on outlook in the financial services vertical and any loss of share to insourcing at large clients; state of spending in the impacted North America market and financial services, hi-tech & telecom verticals; pipeline of deals; and state of discretionary spending and what would it take to revive the same.

 

Any impact of GCC ramp up on growth of companies; and levers to defend and increase margins would also be some key focus areas.