IT major Tata Consultancy Services TCS may report double-digit growth in revenue and net profit on a year-on-year basis for the quarter ended June 30. The topline and bottom line may increase in single-digit on a quarter-on-quarter QoQ basis. There may be a dip in the company's margin due to wage hikes and an increase in other expenses.
An analysis by YES Securities showed that TCS may post 17.1 per cent and 11.1 per cent YoY growth in revenue in Q1 FY 23. Revenue and profit after tax could increase by 5.1 per cent and 0.9 per cent on the QoQ basis, according to it.
Management commentary on the 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 to 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.
The shares of TCS have fallen nearly 13 per cent on a year-to-date basis. The 30 share Sensex pack slipped nearly 8 per cent during the same period.
The ICICI Securities broker said that revenue of TCS could grow 16.1 per cent YoY and 4.2 per cent on a QoQ basis. The adjusted net profit may see a growth of 10.3 per cent YoY and 0.1 per cent QoQ. The EBITDA margin may decline by 199 basis points on a YoY basis and 147 basis points on a QoQ basis, according to it.
ICICI Securities said that we re-iterate our underweight stance on the India IT sector as we see peak revenue growth momentum behind us, and deal and hiring momentum will likely soften. We believe that deployment in the sector should be very slow and gradual as there would be many unknown risks ahead that could further degrade valuations. With regards to these trends of IT spends, we suggest investors stick to 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 a decrease in the QoQ in dollar terms of 2 per cent due to cross-currency headwinds of 200 basis points. It said that the QoQ decline in the EBIT margin will be 90 - 100 basis points due to wage hikes, higher retention costs and an increase in travel costs.
Market watchers advised investors to focus on whether there is a change in nature of demand, for example, more cost focus, presence of large and mega in deal pipeline, hiring, attrition and onsite wage inflation trends and its impact on margins ahead.