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Informist, Tuesday, Jan. 7, 2025

 

By Anjana Therese Antony

 

MUMBAI – Continuous headwinds from furloughs and decline in revenue from Bharat Sanchar Nigam Ltd. are expected to cap the top line growth of Tata Consultancy Services Ltd. during the December quarter, according to research analysts. However, margins may expand due to operational efficiencies and depreciation of the rupee, they said in their earnings preview reports. 

 

India's largest information technology player in terms of market capitalisation is scheduled to release its earnings Thursday. It is expected to post a 0.3?cline in its consolidated revenue from a quarter ago to INR 640.70 billion, according to the average of estimates from 11 brokerage firms. While Nirmal Bang Institutional Equities has the highest top line estimate of INR 652.20 billion, Nuvama Wealth Management has the lowest of INR 605.83 billion. In the September quarter, the top line growth of 2.6% was the highest in seven quarters at INR 642.6 billion.

 

In constant currency terms, Motilal Oswal Financial Services expects revenue to rise 0.4% on quarter. "Revenue remains impacted by furloughs; however, client-specific challenges are likely to normalise in 3Q(Oct-Dec)," the broking firm said. In the previous few quarters, a sharp reduction in discretionary spending by clients, particularly in the US, had hit the financial performance of IT companies in India. 

 

TCS, along with most other IT companies in India, is likely to see the impact of furloughs during the quarter. "The furlough impact is expected to be similar or lower than last year for most companies," Nuvama Wealth Management said in its earnings preview report. This would lead to a decent -0.6% to 6.5% sequential growth for IT companies, it said. From an on-year perspective, growth should be slightly better than last quarter – a manifestation of the continuous improvement in the macroeconomic environment, the broking firm added.

 

When it comes to the consolidated net profit, the Mumbai-based company may post a 3.1% sequential rise in the figure to INR 122.74 billion, according to the average of estimates. Among the 11 estimates, Nirmal Bang Institutional Equities has the highest bottom line view of INR 127.45 billion and Nuvama Wealth Management has the lowest of INR 110.58 billion. Compared to a year ago, the top line is seen rising 5.8% and the bottom line may rise 11%. In the previous quarter, TCS's bottom line had fallen for the second consecutive quarter.

 

Various broking firms echoed that the company's deal pipeline should remain healthy during the December quarter. "The deal pipeline remains robust, bolstered by recent large deal wins," KRChoksey Research said in its earnings preview report. "Positive momentum is anticipated to persist in the BFSI sector, although weakness in the UK/Europe and manufacturing verticals warrants close monitoring," it said. Nirmal Bang expects deal wins to be range-bound at $7 billion-$9 billion due to the lack of mega-deal activity for the IT industry. 

 

MARGINS

The company's operating margin for the quarter, calculated as earnings before interest and tax margin, is widely expected to expand from a quarter ago due to deceleration in BSNL deal-related costs, and the depreciation of the rupee, broking firms said. On Dec. 31, the rupee was at a record closing low of 85.6150 a dollar on recurring demand from importers. Analysts also attribute the likely sequential expansion in margins to the impact of wage hikes in Apr-Jun, operating efficiencies, talent development and training.

 

The company's margin is expected around 24-25%, according to seven broking firms. In the previous quarter, the BSNL deal-related costs had hit the margin, which fell to 24.1% from 24.7% a quarter ago.
 

"The BSNL deal ramp-down is likely to weigh on near-term growth rate for TCS, but we expect TCS to participate effectively on the anticipated recovery in demand, on the back of its diversified offerings across cost optimisation and transformation," Emkay Global Financial Services said in its preview report. In April, TCS had said it is setting up large data centres in four regions of the country as part of its INR 150 billion deal with state-owned telecommunications company BSNL. 

 

MANAGEMENT COMMENTS, VALUATION

Following the results, investors will closely watch for management comments on demand environment, deal pipeline including trends in generative artificial intelligence-related ones, future hiring plans, BSNL deal, near-term expectation of revenue and margin growth, broking firms said. 

 

Analysts said TCS' stock valuation is reasonable. Over the past six months, TCS underperformed the Nifty IT index by 15%. "Although the stock lacks a near-term trigger due to muted short-term revenue growth expectations, we upgrade TCS to ADD with TP (target price) of INR 4,500, on reasonable valuations," Emkay Global said. On Tuesday, the stock closed 1.6% lower at INR 4,028.30 on the National Stock Exchange. 

 

Motilal Oswal Financial Services value TCS at 30 times the earnings-per-share of 2026-27 (Apr-Mar) as it believes "there is a downside risk to our estimates from the BSNL deal ramp-down in FY26". 

 

Following are the Oct-Dec earnings estimates for Tata Consultancy Services, in INR million, based on reports from 11 brokerage firms:

 

Broking Firm	Net Sales (in INR million)	Net Profit (in INR million)	Revenue ($ million)	?IT margin
Centrum Broking Ltd	642,512	120,390		24
Elara Securities (India) Pvt Ltd	639,292	121,803	7,611	25
Emkay Global Financial Services Ltd	645,638	126,534
HDFC Securities Ltd	643,690	120,290	7,618	24
IDBI Capital Market Services Ltd	640,875	123,689	7,593	24
KR Choksey Research	647,088	124,864
Motilal Oswal Financial Services Ltd	644,600	127,300	7,644	25
Nirmal Bang Equities Pvt Ltd	652,203	127,446	7,680	25
Nuvama Wealth Management Ltd	605,830	110,580	7,281	25
Prabhudas Lilladher Pvt Ltd	644,600	124,800	7,636
Sharekhan Ltd	641,420	122,450
Average	640,704	122,741	7,580	25

 

 

End

US$1 = INR 85.71

 

Edited by Deepshikha Bhardwaj

 

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