TCS shares trade flat ahead of Q3; here’s what to expect from IT bellwether

Shares of Tata Consultancy Services (TCS) were trading flat in early trade on Thursday, in sync with broader market, as investors turned jittery ahead of its December quarter earnings report.  The country’s most valued IT stock is slated to release its third quarter results post market hours today.

Early today, TCS shares opened a tad lower at ₹4,105.90 against the previous closing price of ₹4,107.50 in the BSE. In the first hour of trade so far, the IT heavyweight gained as much as 0.55% to hit a high of ₹4,130.15, while the market capitalisation climbed to ₹14.88 lakh crore.

Meanwhile, the equity benchmarks Sensex and Nifty50 were trading lower by 0.3% each at the time of reporting.

In the calendar year 2024, TCS shares delivered 12% return to its shareholders, while it added 3% in the past six months, while it corrected nearly 12% in a month. The Tata group stock touched its 52-week high of ₹4,585.90 on September 2, 2024, and a 52-week low of ₹3,593.30 on June 4, 2024.

TCS is set to kick-off December quarter earnings today, and the Tata group flagship company is expected to witness a sequential slowdown in weak seasonal quarter for IT players due to holidays and furloughs. In an exchange filing on December 31, 2024, TCS said that its board will meet on January 9 to consider and approve financial results and declaration of third interim dividend.

Axis Securities expects the company to report 1.5% QoQ revenue growth. Sharekhan says TCS is expected to report "flattish growth" for the quarter. HDFC Securities says TCS is expected to post 1% growth.

For the second quarter ended September 30, 2024, TCS posted 5% year-on-year (YoY) growth in its net profit at ₹11,909 crore as compared to ₹11,074 crore in the same quarter last year. On a quarter-on-quarter basis, TCS' profit fell from ₹12,040 crore in the April-June quarter. The revenue from operations rose 7.6% YoY to ₹64,249 crore from ₹59,381 crore in the same quarter last year. On a QoQ basis, the consolidated revenue surged from ₹62,613 crore in the first quarter of the fiscal year.

The board of the country’s largest software exporter also declared an interim dividend of ₹10 per equity share of ₹1 each of the company. In 2024, TCS paid dividend on five occasions, aggregating to ₹75 as compared to ₹117 and ₹45, respectively, in 2023 and 2022.

Analysts suggest muted revenue growth is expected for Tier-1 IT service companies but Tier-2 companies could report healthy to robust revenue growth, in a seasonally soft quarter. IT automation in North America and Europe may show delayed spending or face some spending cuts moving forward, they say, adding that many large enterprises will shift focus on cost optimisations, resulting in higher cost take-out deals, vendor consolidation, and lower discretionary spending. 

Verticals such as BFSI, manufacturing, telecom, retail, and hi-tech are expected to be impacted by the slowdown, weakening FY24E growth momentum outlook. 

In the Indian IT landscape, three developments are expected: growth divergence in the near term, margin recovery with favourable supply-side factors, and mid-tier IT sustaining its relative outperformance, says brokerage major HDFC Securities.

Axis Securities Equity Research, in its latest report, says management commentary on issues like outlook on client spend, especially on the BFSI vertical, vertical outlook, rising subcontractor costs, and pricing pressure on realisations will be closely watched. 

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