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Published: October 6, 2023
Updated: October 6, 2023

TCS Q2 Results Preview: Key Factors to Watch Out For

Tata Consultancy Services Ltd (TCS) is gearing up to announce its September quarter results on October 11. As the largest IT firm by revenues, analysts anticipate that TCS may outperform its peers, such as Infosys. Investors are eagerly awaiting insights into the BFSI (Banking, Financial Services, and Insurance) vertical's performance, potential shifts in priorities under the leadership of new CEO Krithivasan, investments in GenAI partnerships and solutions, the deal pipeline, and margin guidance.

Anticipated Financial Performance:

Analysts predict that TCS will report a profit growth ranging from 9% to 11%, accompanied by a similar growth in sales. Furthermore, a sequential improvement in margins is expected following wage hikes in the June quarter.

Sector Overview:

The IT sector, as a whole, has experienced relatively little change in recent months. Demand indicators for the sector remain around 10-15% below levels at the beginning of the year, although they are slightly better than the July lows. Despite soft growth, supply-side factors continue to favour operational resilience.

Revenue Expectations:

BNP Paribas anticipates a dollar revenue growth of 1.5% sequentially, translating to a 1.3% QoQ increase in constant currency (CC) terms. This growth is attributed to reduced spending on discretionary tech due to a slowdown, offset by significant deal ramp-ups. The brokerage also expects a 69 basis points sequential expansion in EBIT margin, reaching 23.8%, driven by operational efficiencies.

Year-on-Year Projections:

Analysts predict a 9.4% YoY increase in net profit, reaching Rs 11,415 crore compared to Rs 10,431 crore in the same quarter last year. Net sales for the quarter are expected to rise by 9% YoY to Rs 60,283.60 crore. EBITDA margin is projected to be 26%, compared to 25.3% in the June quarter and 26.2% in the same quarter last year.

Deal Announcements:

During the preceding quarter, TCS announced significant deals with notable organizations such as GE HealthCare, BBC, Lexmark, Athora, Lantmännen, JLR, BankID BankAxept AS, and Kingfisher Plc, among others.

Motilal Oswal Securities' Outlook:

Motilal Oswal Securities expects TCS to report a 10.9% YoY increase in profit, reaching Rs 11,610 crore, alongside a 9.2% YoY rise in sales to Rs 60,400 crore. The company's EBIT margin is forecasted at 24%. The firm notes TCS's favourable position to capitalize on long- term demand for IT services and expects it to secure a substantial share of current IT spending.

Interim Dividend Announcement:

In addition to its quarterly results, the TCS board will consider the declaration of a second interim dividend for the financial year. If approved, the record date for this dividend will be October 19.

The upcoming TCS Q2 results announcement is poised to provide valuable insights into the IT giant's performance, strategy under new leadership, and its ability to navigate the evolving IT landscape. Investors and industry watchers will be closely monitoring these key indicators to gauge TCS's continued growth and resilience in a dynamic market.