TCS Q2 earnings likely to be at Rs 10,105 crore on strong sales

IT bellwether Tata Consultancy Services TCS whose shares have fallen 20 per cent year-to-date YTD and yet outperformed its IT peers by a healthy margin, will announce its September quarter results on Monday.

Mumbai-headquartered IT major has reported a single-digit rise in year-on-year YoY net profit on a 15 -- 23 per cent YoY jump in net sales for the quarter. Revenue growth is expected to be in the range of 3 - 3.5 per cent in constant currency CC terms.

Even though an improvement is likely on a sequential basis, the EBIT margin is shrinking in excess of 200 basis points on a yearly basis. The total contract value of TCV could be around $8 - 8.5 billion, according to analyst projections.

Accenture's outsourcing business, which is a proxy to Indian IT companies, was positive in August-end, according to analysts.

The investors felt that they could focus on the management commentary on client spends, deal momentum, attrition rate, and levers to defend margins in light of wage inflation and little leverage from pricing.

Kotak Institutional Equities expects TCS to report a 5 per cent increase in net profit at Rs 10,105. In the same quarter last year, there was a 20 crore increase in the amount of Rs 9,624 crore. Sales rose 17.3 per cent YoY to Rs 54,984 crore from Rs 46,867 crore in the year-ago quarter.

We forecast a solid sequential revenue growth of 3.1 per cent, driven by seasonal strength and growth in digital services, led by cloud. Cross-currency headwinds of 540 bps YoY will be extremely high. The EBIT margin will increase from the lows of June 2022, due to absorption of wage revision in the earlier quarter. There are multiple margin headwinds that exist, with high attrition and increase in travel and discretionary expenses, it said.

Foreign brokerage Jefferies expects revenues to increase 23 per cent YoY to 36,410 crore in the quarter, rising 4.8 per cent YoY to Rs 10,085 crore. This brokerage believes that the Ebit margin will contract 319 basis points YoY to 25.6 per cent in September quarter from 20.4 per cent in the year-ago quarter.

We expect Q 2 FY 23 revenue growth to be robust at 3.5 per cent QoQ CC, driven by deal ramp ups and a seasonally strong quarter. We estimate that Ebit margins to improve 50 bps QoQ to 23.6 per cent, driven by pyramiding, operating leverage and pricing benefit, a result of continued pickup in travel discretionary discretionary factors.

It said that there were expenses and supply side pressures.

Emkay Global sees profit rising 9.5 per cent YoY to Rs 10,541 crore on a 17.6 per cent YoY increase in sales at Rs 55,132. There are 40 crore. It is building in a 1.9 per cent growth in dollar revenues on a sequential basis, as it bakes in 210 basis points bps cross-currency headwinds.

The EBIT margin will expand by 90 bps QoQ, it said, due to operating efficiencies, normalisation of salary hike and rupee depreciation.

This brokerage believes demand trends in key verticals such as BFSI, retail, manufacturing and communications will be closely watched, and so would be deal intake, pricing environment and margin outlook.

Motilal Oswal sees the profit for the IT firm at Rs 10,410 crore, up 7.9 per cent YoY. It said sales were up 17.5 per cent YoY at Rs 55,090 crore. Margin is expected to see a recovery from wage hikes that impacted the June quarter margin in the September quarter, and it said strong demand commentary is likely.

The brokerage said that growth should be strong in constant currency CC terms, but the growth will have an impact on cross-currency movements.

The stock of TCS has fallen 20 per cent year-to-date against a 2 per cent drop in the BSE Sensex. The scrip has outperformed IT peers Infosys 23 per cent, HCL Technologies down 28 per cent, Wipro down 43 per cent and Tech Mahindra down 43 per cent during the same period.