TCS Q3 Results Preview: Margins Expected To Improve, Profit May Rise 5.3%

IT major Tata Consultancy Services Ltd. will be kicking off the IT results season on Jan. 9. In a seasonally weak third quarter, the company is expected to see improvement in its margins due to absence of a wage hike. While profit is expected to rise sequentially, revenue may remain flattish, with furloughs weighing in and contribution from BSNL deal reducing. 

Net profit may rise 5.3% sequentially to Rs 12,540 crore for the quarter ending December, according to the consensus of analysts' estimates tracked by Bloomberg. Revenue is expected to marginally rise by 0.8% for the period to Rs 64,754, per estimates. 

TCS Earnings Estimates (Quarter-on-Quarter) 

• Revenue may rise 0.8% to Rs 64,754 crore vs Rs 64,259 crore.

• Ebit may rise 3.3% to Rs 15,986 crore versus Rs 15,469 crore.

• Ebit margin expected at 24.7% vs 24.1%.

• Net profit may rise 5.3% to Rs 12,540 crore vs 11,909  crore.

Brokerage Views 

TCS' revenue may decline by 0.3% sequentially, impacted by usual furloughs and slightly lower contribution from BSNL deal. Margins are expected to increase by 45bps QoQ, due to lower contribution from BSNL and absence of client specific issues in healthcare, as seen in second quarter. Deal wins are likely to be steady, driven by cost take out deals, Jefferies said. 

“Decent deal wins in USD 7-9b range. Growth should be flattish as we expect growth momentum in BFSI and Hi -Tech will be offset by decline in regional markets revenue,” DAM Capital noted. 

In the second quarter, the company's Total Contract Value stood at $8.6 billion, sequentially 3.6% higher from $8.3 billion recorded in preceding quarter. However, on a YoY basis, TCV had dipped 34.8%. 

JM Financial expects flat revenue growth, with 95 basis points cross currency tailwind translating into 1% decline QoQ in USD revenue terms. “We estimate $60 million decline in BSNL deal; excluding regional markets (where BSNL is housed), we expect +1% cc QoQ,” it said. 

Key Things To Watch

• Demand and margin outlook.

• Discretionary trends and client budget outlook.

• BSNL deal ramp-down schedule.

• Growth in the BFSI space.

Employee Headcount And Attrition 

In the second quarter, employee headcount increased by 5,726 employees, bringing the total to 6,12,724. Attrition rate in the second quarter inched up marginally to 12.3% from 12.1% in Q1.

TCS' updates on hiring plans including freshers and laterals for FY26, are to be watched out for, as revival in hiring gives an insight into the demand and project pipeline of the company.