TCS Q3 preview: Margins to expand sequentially; Revenue may grow 16-18% YoY

IT major Tata Consultancy Services (TCS) will kick start the Sept-Dec quarter (Q3) earnings on Monday, January 9.

The company’s revenue is expected to moderate in the seasonally weak quarter due to impact of higher furloughs and weakening in BFSI, hi-tech and manufacturing segments, analysts say.

However, the company’s profit margins will likely improve over the previous quarter aided by a weak rupee, lower attrition, ease in supply-side pressures and operational efficiency.

As per five brokerage estimates, TCS may post up to 18 per cent year-on-year (YoY) revenue growth to an average of Rs 57,446 crore.

The bottom line could rise 10-16 per cent YoY to around Rs 11,046 crore.

Key monitorables: Street will watch out for impact on verticals due to the global macro situation, attrition trends, commentary on pricing, deal closures and deal pipeline, clients' tech budgets for 2023, vendor consolidation gains and outlook on EBIT margin.

Here’s a snippet of what top brokerages expect:

IDBI Capital: Expects 3 per cent and 0.7 per cent QoQ revenue growth in rupee and constant currency (CC) terms, respectively, with cross-currency tailwinds of 10 basis points (bps). Improved utilization and easing of supply-side challenges will aid margin improvement of 35 bps to 24.4 per cent.

Kotak Instiutional Equities: Expects TCS to do relatively better from the IT pack with firm revenue growth of 1.9 per cent in CC terms led by vendor consolidation gains and strong deal wins. Sees deal wins of $9 billion-plus for the quarter and quarterly rise of 80 bps in EBIT margin.

Dolat Capital: Expects CC revenue growth of 1.8 per cent QoQ led by sustained strong total deal wins/revenue multiplier of 1.3x. Operating profit margin may improve by 52 bps QoQ, while net profit is expected to rise 5.6 per cent QoQ.

ICICI Securities: Expects furloughs to be higher in Q3 over the last couple of years. Projects CC QoQ growth of 1.5 per cent. Growth will be lower compared to the strong first half due to lesser working days. Rupee revenue is expected to grow 3.5 per cent QoQ and margins by 20 bps sequentially. Mix of deals expected to be skewed towards cost-take-out programs.

PhillipCapital: Growth moderation versus the previous quarter is likely due to seasonality. Expects margins to increase by 50 bps QoQ.