TCS shares rise 1% ahead of Q2; here’s what to expect from IT major

Shares of Tata Consultancy Services (TCS) rose nearly 1% in opening trade on Wednesday ahead of its second quarter earnings report slated to be released post market hour today. The share price of the IT major has risen in the last five out of six sessions and gained over 4% during the same period.

Early today, TCS shares opened higher at ₹3,664, up 0.9% against the previous closing price of ₹3,629.20 on the BSE. However, the IT heavyweight soon pared most of the early gains and was trading flat at ₹3,632.50 at the time of reporting, while the market capitalisation stood at 13.28 lakh crore.

At the current price level, the shares of the country’s most valued IT stock trade nearly 1.5% lower than its 52-week high of ₹3,680 touched on October 9. 2023. It hit a 52-week low of ₹3,053.30 on October 13, 2022.

TCS will kick off corporate earnings season by reporting its financial results for the July-September period today. Investors will keep a close eye on top and bottom line growth, interim dividend, trends in margin and attrition, demand environment, and share buyback. The Tata Group company’s revenue guidance, policy on ‘work from home’, and hiring plan for the current fiscal will also be tracked.   

According to Axis Securities, TCS is expected to report revenue growth of 1.5% quarter-on-quarter (QoQ), amid delayed spending and slower ramp up. Its moderation of subcontract costs is likely to expand margins by 80 basis points (bps). It expects deal wins to be in the range of $6- $8 billion in the quarter.

Key attributes to watch out for are total contract value (TCV) and deal in pipeline, pricing scenario, and outlook on growth and margins, it said. “Management commentary on new deal ramp up and visibility going ahead and vertical outlook such as BFSI, Hitech, Manufacturing etc. on the is key thing to watch,” it added.

The brokerage projects profit after tax (PAT) at ₹11,500 crore and revenue at ₹60,270 crore in Q2FY24. The earnings before interest, taxes, depreciation, and amortisation (EBITDA) is expected at ₹14,446 crore with a margin of 24%.

Another brokerage JM Financial expects TCS to post constant currency revenue growth of 1% with 20 bps cross currency headwinds translating into 0.8% QoQ dollar revenue growth. It expects 55 bps expansion in EBIT margin led by lower subcontract expenses, better utilisation and currency benefits.

“We expect reported deal TCV to be healthy as indicated by a few large deal wins recently,” it added.

In Q1 FY24, TCS registered 16.8% YoY growth in consolidated net profit at ₹11,074 crore in the April-June quarter of the current fiscal, while it sequentially dropped by 2.8% from ₹11,392 crore in the March 2023 quarter. The revenue from operations rose 12.6% YoY to ₹59,381 crore, while it fell marginally by 0.37% from ₹59,162 crore in Q4FY23. The board of the company also declared the first interim dividend of ₹9 per equity share for the current fiscal.

In dollar terms, the revenue climbed 7% to $7,226 million as against the same quarter last fiscal, while it was flat compared with the previous quarter, which was a tad below the consensus estimates of 0.2% QoQ in constant currency (CC) terms.

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