India’s largest software services exporter, Tata Consultancy Services (TCS) on Monday will kick off the corporate earnings season for the September quarter of the current financial year (Q2FY23). The company is all set to announce its results scheduled post-market hours on Monday.
The shares of the IT giant gained 1.47% and were trading in the green, ahead of its September quarter results. The company’s shares were trading at ₹ 3111.90 apiece at 12:53 PM on Monday. According to market observers, investors are expecting high single-digit growth in TCS’ profit and a decent recovery in margins.
“Revenue growth momentum is expected to continue on strong deal execution while margins are expected to improve sequentially as wage hike is behind now. TCS is expected to register 3% QoQ growth in constant currency led by continued improvement in demand from BFSI, healthcare, and retail, acceleration in digital technologies, and ramp-up of deals. Further, cross-currency headwinds of 150 bps would lead to revenue growth of 1.5% QoQ in dollar terms,” said Sameer Pardikar and Sujay Chavan analysts at ICICI Direct.
Here are five things to watch out for:
Margin Recovery
Kotak Institutional Equities said that the EBIT margin will increase from the lows of the June 2022 quarter, due to the absorption of wage revision rolled out in the earlier quarter. “However, multiple margin headwinds do exist with high attrition and increase in travel and discretionary expenses,” it added.
Second interim dividend
TCS’ Board of Directors will also consider the declaration of a second interim dividend to the equity shareholders. This dividend, if declared, shall be paid to the equity shareholders of the Company whose names appear on the Register of Members of the Company or in the records of the Depositories as beneficial owners of the shares as of Tuesday, October 18, 2022, which is the Record Date fixed for this purpose, as per the company’s filing with the bourses.
Cross-currency headwinds
Analysts said that the benefit of a sharp depreciation in the rupee will be partly offset by the dollar appreciating against other currencies such as the euro, pound and Australian dollar. This would lead to a higher-than-normal cross-currency impact, and hurt dollar revenues, much like the June quarter. Sharekhan said that a likely 220 basis points cross-currency impact could result in lower reported dollar revenue growth of 0.9 per cent QoQ.
Demand outlook and deal pipeline
Edelweiss is expecting optimistic commentary by the management and an update on client spending for CY23 in an uncertain macro environment. Kotak Institutional Equities expects moderate growth in the total contract value (TCV) of the deals on a y-o-y basis to $8-8.5 billion, as far as the deal pipeline is concerned.
Hiring/attrition
Attrition is expected to remain elevated in the September quarter, said Nirmal Bang Institutional Equities. It added that the net hiring number will also serve as a harbinger of any growth slowdown.
Written by Simran Bafna
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