Prior to the release of the business’s March quarter results, shares of the major IT company Tata Consultancy Services (TCS) dropped more than 1% in Tuesday’s trading. Even though the Tata group company is anticipated to record double-digit profit growth, which would be the biggest in the tier I space, the share price dropped 1.48 percent to a low of $3,215.10.
The largest IT business in India in terms of market capitalization has outperformed rivals Infosys and Wipro so far in 2023. On Wednesday, TCS will present its third quarter financial results.
Deal TCV/pipeline, pricing scenario, and perspective on growth/margins/DSO days are important factors to pay attention to.
For the quarter that concluded in March 2023, domestic brokerage and research firm Axis Securities anticipates TCS to report revenue growth of 2.5% quarter over quarter (QoQ).
TCS is predicted by brokerage Nuvama to post sequential sales growth of 1.4% in constant currency terms, the highest among its competitors.
Gains in profits
“In terms of growth in Tier 1 IT, TCS is most likely to take the lead in Q4FY23. Spending on digital and cloud-based initiatives, cost savings, and increases in wallet share and vendor consolidation are projected to be the main drivers of growth. In our opinion, exposure to impacted banking clients will not significantly affect the quarter’s revenue growth “Kotak Institutional Equities, a domestic brokerage, said.
Margin experts think TCS might fall short of the desired EBIT margin. Brokers anticipate that TCS will announce a 25% Ebit margin, up 50 basis points sequentially.
According to ICICI Direct, TCS will fall short of the desired exit EBIT margin range of 25% since slower growth would be an additional challenge. As a result, the firm has only added 20 bps to its QoQ margin expansion (versus 50 bps implied margin expansion for target exit).
During the quarter ending in December 2022, the operating margin was 24.5%, down 0.5% year over year, while the net margin was 18.6%.
The operating margins of the Tata group companies should increase by 97 basis points, according to Axis Securities. In the meantime, other brokerages anticipate that as the pressure from employee attrition eases, the operating margin will increase by 10-70 bps sequentially.
Brokerage Deal victories for the Tata group company, according to HDFC Institutional Equities, will total $8.5 billion. Kotak Institutional Equities, meanwhile, anticipates that TCS would win significant deals worth $10 billion or more, assuming a typical renewal component. TCV from the massive agreement with BSNL that is most likely to be inked with TCS was not included. Kotak anticipates TCV to exceed $10 billion.
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