TCS Q1FY24 earnings preview: IT major is likely to see muted revenue growth on project delays; EBIT margin may contract

Tata Consultancy Services (TCS), the largest software services exporter in India, will announce its earnings for the first quarter of FY24 on July 12. The company will also declare an interim dividend along with the results.

The IT major is expected to see a dull quarter, in line with the weak sector performance which was impacted by a slower deal pipeline conversion leading to an impact on volumes in a seasonally strong quarter. 

During Q1FY24, full quarter wage hike impact and lower utilisation due to project cancellations and postponements are likely to weigh on margins of TCS. Meanwhile TCV is likely to be flattish after the deal with BSNL.

The uncertainty over demand seen in the month of March has continued in the June 2023 quarter for TCS and the company is seeing some project cancellations and postponements.

Some right-shifted projects have started ramping up in June. Europe and the UK are growing well while there is more weakness in North America, analysts said.

Also Read: Demand slowdown to weigh on IT services firms’ Q1 show

According to Emkay Global Financial Services, TCS may see 1.3% QoQ USD revenue growth factoring 30 bps cross-currency tailwinds. 

The brokerage house expects the company’s EBIT margin to decline by 100 bps QoQ due to wage hike, partly negated by operating efficiencies, employee pyramid rationalization, and cross-currency tailwinds. 

Analysts at Motilal Oswal expect TCS to see muted revenue growth on account of project cancellations and delays, while EBIT margin is expected to decline 140 bps, on account of wage hikes and weak revenue growth. 

According to Motilal Oswal, TCS June quarter revenue may rise 0.7% QoQ to $7,246 million. In rupee terms, its revenue is expected to grow to ₹59,600 crore.

TCS is expected to post net profit of around ₹10,900 crore, registering a sequential decline of 4.6%. EBIT is expected to fall to ₹13,800 crore, while EBIT margin is likely to contract to 23.1% from 24.5%, QoQ.

Also Read: TCS to declare Q1 results, interim dividend on 12 July, fixes record date; here's how IT-giant's earning will look like

Meanwhile, brokerage firm Nirmal Bang expects TCS to report revenue growth of 1.0% QoQ on a CC basis, backed by strong order inflow of the last 12 months. It is likely to face a cross-currency tailwind of ~45 bps on a QoQ basis.

Going ahead, CY23 IT budget and the possibility of an uptick in H2 as H1 played out in a muted manner and demand trends in key verticals like BFSI, Retail, Manufacturing and Communications will be among key things to watch out for.

Moreover, deal intake in Q1 and deal pipeline, pricing environment considering macro uncertainties and deal mix shift towards cost takeouts, will also be on the radar.

Investors will also watch out for TCS’ margin outlook, management commentary on the demand environment across geographies and update on delay or deferral or cancellation of projects due to macro uncertainties and hiring plan amid slowing growth and macro uncertainties.

Meanwhile, during the quarter ended March 2023, TCS missed the street's expectations after the company posted consolidated 5.03% QoQ growth in consolidated net profit to ₹11,392 crore and revenue from operations at ₹59,162 crore, up 1.6% QoQ. Further, the net margins stood at 19.3%, while operating margins came in flat at 24.5%.