TCS Q3 Outlook: Slow earnings growth, emphasis on deals, demand

Tata Consultancy Services (TCS) is expected to unveil modest revenue and profit growth in its upcoming third-quarter financial results for the current fiscal year (Q3FY24). The projections attribute this anticipated slowdown to weakened discretionary spending in key Western markets.

Key Focus Areas Beyond Financials:

Apart from financial figures, analysts are closely monitoring deal wins, the outlook on near-term demand, and the performance of the Banking, Financial Services, and Insurance (BFSI) segment.

Q2 Performance and Sector Breakdown:

In the previous quarter, TCS reported an 8.7% YoY increase in consolidated net profit, driven primarily by growth in the energy, resources, and utilities vertical. However, sectors such as BFSI, communications and media, and technology and services experienced declines.

Analyst Insights on Q3 Expectations:

Motilal Oswal Financial Services anticipates a 7% YoY growth in reported PAT and a 2.5% YoY growth in overall revenue in Indian rupee terms. The firm expects muted growth due to furloughs and weak macros, projecting a 0.4% QoQ constant currency growth for Q3.

Kotak Institutional Equities projects a 3.6% YoY growth in net sales and an 8.4% YoY growth in reported PAT. The focus will be on the outcome of the client budgeting cycle for 2024, with expectations of a spending revival.

Sharekhan by BNP Paribas expects muted revenue growth at 0.3% in constant currency terms, attributing this to furloughs but offset by contributions from the BSNL deal. EBIT margins are predicted to improve by about 25 bps QoQ.

Nuvama Institutional Equities foresees a 0.5% constant currency revenue growth and 0.1% USD growth QoQ. The firm expects margins to remain flat and emphasizes a keen interest in commentary on client spending and AI.

Phillip Capital anticipates 0.7% QoQ constant currency revenue growth, with modest growth due to furloughs in BFSI and hi-tech sectors. Key focus areas include budget comments for 2024, demand commentary, deal ramp-up visibility, and margins outlook.

Key Considerations for Investors:

Investors are advised to scrutinize TCS's budget comments for 2024, demand commentary, deal ramp-up visibility, vertical performance, deal total contract values (TCVs), pipeline status, and margins outlook for a comprehensive understanding. It's essential to note that the views expressed are those of individual analysts and brokerage firms. Investors are encouraged to seek advice from certified experts before making investment decisions.