TCS Q2 Preview: Analysts expect single-digit profit rise, focus on outlook | News on Markets
According to brokerages tracked by Business Standard, TCS will likely report an average revenue increase of 7.2 per cent year-on-year (Y-o-Y) to Rs 63,993.2 crore. Sequentially revenues may only rise by 2.8 per cent. The company registered revenues of Rs 59,692 crore in Q2FY24 and Rs 62,229 crore in the June quarter of FY25.
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TCS is expected to log an average net profit of Rs 12,350.2 crore, rise of 8.8 per cent in Q2FY24 compared with Rs 11,342 crore in the same quarter last year.
Though on a quarterly basis, profits may move up by mere 2.5 per cent. The company reported a profit after tax (PAT) of Rs 12,042 in the June quarter of FY25.
Key monitorables: The street will watch out for outlook in financial services vertical and any loss of share to insourcing at large clients; state of spending in UK & Europe market
and signs of improvement in demand; deals pipeline; state of discretionary spending and what would it take to revive the same; impact of GCC ramp up on growth of companies; and levers to defend and increase margins.
Moreover, here’s what key brokerages expect from TCSs Q2 results:
HSBC: The brokerage said that TCS may see Q-o-Q weakness in Q2 due to slowdown in the UK business. However, it added that BSNL deal ramp-up continues to provide support to growth, but overall growth is expected to be weak in the quarter.
“We expect TCS to report 1.5 per cent cc q-o-q revenue growth, with stable margins. Key focus area includes commentary on the discretionary spend environment and deal conversion rates,” the brokerage said in its results preview note.
Nuvama: Nuvama anticipates TCS to deliver 1.3 per cent QoQ CC revenue growth and 1.9 per cent QoQ $ growth, driven by emerging markets and weakness in the US and UK. As per the brokerage, margins are expected to fall by 50 bp QoQ due to ramp up of BSNL deal and weakness in developed geographies.
Further deal-wins should be stable as the analysts will watch out for reasons behind weakness in the developed market in the quarter and the outlook on them.
Kotak Institutional Equities: KIE projects a US$55 million quarter-over-quarter incremental contribution from BSNL for TCS, while revenues in the rest of the business are expected to remain stable. This stability will be countered by challenges in Europe, although there is some improvement noted in the U.S. BFSI sector.
KIE forecasts a 30 basis points quarter-over-quarter increase in EBIT margin, primarily driven by rupee depreciation. However, headwinds for the quarter include (1) lower utilisation rates and (2) a shift in revenue mix toward the lower-margin BSNL contract. It is noteworthy that margins in Q1 included a 35 basis points one-time impact from an electoral trust contribution.
The brokerage expects US$10 billion in deal wins, representing a decline from the September 2023 quarter. The previous year’s total contract value (TCV) included mega-deals with a significant renewal component.
KIE’s focus will be on the outlook for Europe, which remains challenging despite multiple mega deal wins over the past year.
PhillipCapital: Analysts at PhillipCapital anticipate a 1.7 per cent quarter-over-quarter constant currency revenue growth for TCS, driven by (a) the ramp-up of the BSNL deal, contributing less than 1 per cent, and (b) a pickup in the U.S. BFSI sector due to project ramp-ups.
Margins are expected to improve slightly to 24.9 per cent following wage hikes in Q1. The brokerage advises monitoring commentary regarding the FY25 demand environment, particularly concerning discretionary spending, deal ramp-up visibility, vertical-specific insights, and the outlook for margins.
Motilal Oswal: Motilal Oswal forecasts a 1.0 per cent quarter-over-quarter constant currency growth for TCS, driven by deal scale-up, including the BSNL deal, along with an incremental pickup in the North American BFSI sector.
EBIT margins are expected to decline by 20 basis points due to the ramp-up of the BSNL deal and investments in talent development and training. The brokerage notes that the deal pipeline should remain healthy, with some positive movement in BFSI; however, weakness in the UK market requires monitoring.
Key areas to watch include the outlook on near-term demand and pricing environment, developments in BFSI, and deal wins.
First Published: Oct 08 2024 | 12:01 PM IST
