Discover TCS Q2’s promising outlook with anticipated revenue and profit growth, accompanied by buyback prospects. Dive into the latest insights on this high-potential quarter.
As we eagerly await the unveiling of Tata Consultancy Services’ (TCS) second-quarter results for 2023, analysts are painting a picture of cautious optimism. While global economic concerns continue to affect client spending, TCS is expected to demonstrate single-digit increases in both revenue and profits. Moreover, there’s a buzz about the possibility of a buyback, which is keeping investors on their toes.
Softened Growth in Constant Currency Revenue
The upcoming results for the September quarter (Q2) of 2023 are anticipated to reveal a subdued growth in constant currency (cc) revenue compared to the previous quarter. This softening can be attributed to persistent concerns in the global macroeconomic landscape, which continue to restrain client spending across various sectors.
Profit Surge in Rupee Valuation
In terms of rupee valuation, TCS is poised to witness a remarkable 9 percent increase in profits year-on-year, amounting to Rs 11,396 crore, based on the consensus of five brokerage estimates. On a quarter-on-quarter basis, this figure may rise by 3 percent.
Steady Revenue Growth
Meanwhile, revenue is also expected to experience a single-digit year-on-year growth of 9 percent, reaching Rs 60,293 crore, with a potential 1.5 percent uptick compared to the previous quarter.
EBIT Margin Expansion
Analysts are eyeing an expansion in the company’s EBIT margin by 55-90 basis points to as high as 24.1 percent, primarily fueled by currency-related advantages, enhanced operational efficiency, and prior wage adjustments made in the previous quarter (Q1). For context, in Q1, the EBIT margin stood at 23.2 percent.
Key Factors Investors Are Watching
Investors will be closely observing several key factors, including the announcement of a potential buyback, insights into demand and the banking sector, significant deal wins, and workforce expansion. Additionally, any indications of changes in the firm’s strategy and priorities under the new CEO, as well as strategies to defend and enhance margins, will be of particular interest.
Brokerage Expectations
Here’s what various brokerages are anticipating:
HSBC Global
They anticipate a 1 percent cc growth, attributing the industry’s weakness partially to cost reductions and vendor consolidation activities. Yearly cc growth is projected to moderate to 5 percent for the quarter. Margin improvement of 60 basis points is expected, given the absence of wage hikes seen in Q1.
Kotak Institutional Equities
Their forecast suggests marginal revenue growth due to persisting weakness in discretionary spending across multiple sectors. CC revenue growth is likely to moderate to 3.2 percent on a year-on-year basis. They do not anticipate any revenue contributions from the BSNL deal. A 67 basis point increase in EBIT margin quarter-on-quarter is primarily attributed to improved operational efficiencies. Yearly margin decline is expected due to growth deceleration and increased expenses related to travel and office operations. They forecast total contract value (TCV) of deal wins, including the BSNL deal, to reach $12 billion, marking a 48 percent year-on-year growth. While TCS has not disclosed the TCV from the BSNL deal, it could potentially be valued at around $1.8 billion.
JM Financial
They expect a 1 percent cc revenue growth, with a 20 basis point cross-currency headwind translating to 0.8 percent dollar revenue growth quarter-on-quarter. An EBIT margin expansion of 55 basis points is anticipated, driven by reduced subcontracting expenses and improved utilization. They also anticipate a healthy reported deal TCV, reflecting recent large deal wins.
Motilal Oswal Financial
They foresee a significant 90 basis point margin improvement quarter-on-quarter after wage hikes in Q1. However, overall growth is expected to remain subdued due to weak macroeconomic conditions. They anticipate a 1.1 percent cc growth quarter-on-quarter for the September quarter. The deal pipeline is expected to remain resilient, particularly in the UK regions, while the US and Europe continue on a weaker trajectory.
Nomura
Their expectations include a 0.5 percent cc growth quarter-on-quarter and a 100 basis point EBIT margin expansion quarter-on-quarter. Despite these positive indicators, the brokerage maintains a “reduce” rating on the stock.
Conclusion
In conclusion, TCS’s Q2 2023 performance is eagerly awaited, with analysts projecting modest growth in both revenue and profits. The company’s ability to navigate global economic challenges and its strategic moves, including the potential buyback, will be closely monitored by investors.