TCS Q1 Results Preview: Key Things To Watch

The profit of India’s largest IT services firm likely remained under pressure in what is traditionally the strongest quarter for the $245-billion industry.

Revenue of Tata Consultancy Services Ltd. likely rose 1.18% sequentially to Rs 59,862 crore in the three months ended June 30, according to a consensus estimate of analysts tracked by Bloomberg. Net profit fell by nearly 4% over the previous three months to Rs 10,982 crore.

TCS Q1 Preview: Bloomberg Estimates

• Revenue: Rs 59,862 crore

• EBIT: Rs 14,048 crore

• EBIT margin: 23.7%

• Net profit: Rs 10,982 crore

Brokerages, however, painted an even bleaker picture for the IT bellwether. They expect TCS to record little to no sequential growth in constant-currency terms in April-June due to the likely spillover of the slowdown in dealmaking seen in January-March. U.S.-based clients—in the aftermath of a regional bank crisis in mid-March—are increasingly choosing efficiency over discretionary spending, but the deal pipeline otherwise looks healthy.

“We expect Q1 FY24 revenue to be flat, impacted by project ramp-downs, delayed ramp-ups, and a slower sales cycle,” Jefferies said in a June 30 note. “[We] expect deal bookings to be strong due to large/mega deals announced recently.”

Motilal Oswal concurred. “TCS remains best positioned to benefit from long-term structural tailwinds in tech services, and should see a relative pick-up in growth, aided by clients’ focus on cost optimisation and efficiencies.”

During the April-June quarter, TCS won five large deals, including those from retailer Marks & Spencer’s, U.K. pension fund STEM, and Standard Life Partners. A 10-year deal with U.S.-based Transamerica AG was scrapped midway as the insurer chose to go the “insourcing” route.

Still, growth in total contract value, or deal wins, is seen as flattish and slightly higher sequentially at $10 billion, as large deals offset the decline in discretionary dealmaking, Nirmal Bang said.

EBIT margin of TCS may have likely contracted 90 basis points sequentially, primarily due to salary hikes, in the April-June quarter, according to Nirmal Bang. Higher travel, facilities, and sales and marketing costs weighed on profitability but might have been offset by higher utilisation, pyramid benefits, and lower subcontracting costs.

At 38%, the IT bellwether’s outsized revenue exposure to financial services is another pain point, according to Nomura. The slowdown in the BFSI vertical, following the regional bank crisis, likely created a headwind in this vertical in Q1 FY25. The fact that these lenders are still shy on IT spends despite record profits has the brokerage cautious.

But TCS now has a BFSI veteran at the helm. Krithi Krithivasan, who has been with India’s largest IT services firm for 34 years, will address his first earnings presentation today. His strategic direction for the vertical and demand commentary on the overall business will be keenly watched, especially when all of FY24 is seen as a washout.